Why Molina Healthcare Shares Rocketed Higher


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 Medicaid-related health-care plan provider Molina Healthcare (NYS: MOH) popped by as much as 31% this morning after it announced that it would continue to be a Medicaid managed health-care provider in Ohio after winning a bid from state officials.

So what: Before you get too excited, understand that today's 31% rise follows yesterday's 31% tumble after Molina warned that higher costs in Texas would cause it to potentially lose money in the state, and forced it to rescind its earnings guidance. Today's news out of Ohio adds some wind back into shareholders' sails as Ohio chose to reverse its original decision and give its Medicaid managed health-care business to both Molina and Centene (NYS: CNC) at the expense of Aetna (NYS: AET) , which is a large commercial insurer in the state. The state's decision remains unchanged on UnitedHealth Group (NYS: UNH) and it will join Molina and Centene as a health-care plan provider.

Now what: Today's news is good because it will drive new business, but it could prove to be a moot point if Molina is paying out more in medical costs than it's bringing in with its premiums. Molina is a cash-rich company that has historically traded at a lower valuation than its peers mainly because of its targeting of lower-income (and thus, lower-margin) families, so it does have an attractive valuation on its side. However, until Molina solidifies its near-term picture and guidance, I wouldn't be brave enough to go near the stock.

Craving more input? Start by adding Molina Healthcare to your free and personalized watchlist so you can keep up on the latest news with the company.

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended buying shares of, and creating a diagonal call position in, UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.