Why Molina Healthcare Shares Got Crushed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of health insurer Molina Healthcare (NYS: MOH) plummeted 25% on Monday after the company wasn't selected by Ohio to administer the state's Medicaid program for roughly 1.8 million people.

So what: As a result of the decision, Molina's existing contract with the state will expire without renewal at the end of the year. Peers Amerigroup, Centene, and WellCare will also lose their Ohio contracts, but the news seems particularly troublesome for Molina, which generates about 20% of its premium revenue from the state.

Now what: I'd look into this plunge as a possible buying opportunity. While the contract loss will certainly deal a blow to Molina's near-term results, the good news is that management will now have the capital to grow into other areas. After all, Molina was already looking to expand and lighten its exposure to Ohio anyway, so this might be an attractive entry point for long-term investors.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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