Molina to Expand - Analyst Blog

Molina Healthcare Inc. (MOH) announced recently that it will purchase information technology (IT) company Unisys Corp.'s (UIS) health information management (HIM) business for $135 million in cash.

The transaction is expected to close in the first half of 2010. The closure of the transaction will see 900 employees of the HIM division joining Molina Healthcare. As a part of the deal, the IT company will provide certain transitional and technology support services to Molina for up to a year following the completion of the acquisition.

The business to be acquired by Molina focuses on providing design, development, implementation and business process outsourcing solutions to state governments for their Medicaid Management Information Systems (MMIS). MMIS is used for supporting the administration of state Medicaid and other health care entitlement programs.

Current annual revenues of the HIM business stand at approximately $110 million. Furthermore, it possesses MMIS contracts with the states of Idaho, Louisiana, Maine, New Jersey and West Virginia, in addition to a contract aimed at providing drug rebate administration services for Florida Medicaid program.

Molina Healthcare, a multi-state managed care organization, participates exclusively in government sponsored health care programs catering to low-income persons, such as the Medicaid program and the Children’s Health Insurance Program (CHIP). We believe that the addition of the HIM business will add value to the company’s existing Medicaid health plan business and also help to expand the services and product offerings of Molina.

We have an Underperform rating on Molina primarily because of the company’s below-par showing in the third quarter of fiscal 2009, which is likely to continue. Molina recently came up with poor preliminary results for the coming quarter. The company intends to announce complete results for the fourth quarter as well as fiscal 2009 on February 11, 2010.

Molina reported a 45% decline in earnings for the third quarter of 2009. The decline was mainly attributable to the higher operating expenses, which recorded a 17.5% increase. The primary component of operating expenses, i.e. medical cost, increased 18.4% in the quarter. The H1N1 influenza and costs associated with recently enrolled members were the key contributors to the higher medical costs. The impact of the H1N1 flu epidemic is significant and has the potential to worsen in the coming quarters. We are also concerned about the intense competition facing Molina. Molina competes with players such as Centene Corp. (CNC) and WellPoint Inc. (WLP).

Read the full analyst report on "MOH"
Read the full analyst report on "CNC"
Read the full analyst report on "WLP"
Read the full analyst report on "UIS"
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