Why Magellan Health Is Our Bull of the Day (MGLN)

Earnings estimates continue to improve and power MGLN stock

The Healthcare segment has seen solid gains in many subcategories over the past few quarters.  Specifically, the pharmacy benefits management (PBM) and healthcare plans segments have been outperforming the markets of late.

One such company has reduced costs, increased their healthcare business opportunities, has had their PBM exceed expectations, and has increased their profit guidance by more than $30 million for 2016.

This company is Magellan Health (MGLN), and they are the Zacks Bull of the Day.

This Zacks Ranked #1 (Strong Buy) is a leader in managing the fastest growing, most complex areas of health, including special populations, complete pharmacy benefits and other specialty areas of healthcare. Magellan develops innovative solutions that combine advanced analytics, agile technology and clinical excellence to drive better decision making, positively impact health outcomes and optimize the cost of care for the members we serve all within a customer-first culture.

Magellan’s customers include health plans and other managed care organizations, employers, labor unions, various military and governmental agencies and third-party administrators.

In their most recent quarter, the company posted net revenues of $1.19 billion, up 28.9% from the year ago quarter.  According to Chairman and CEO Barry Smith:

“The results in our Pharmacy Management segment have been very strong, and we continue to grow both the top and bottom line, while maintaining our focus on key initiatives to further expand our services and capabilities as a full-service pharmacy benefit manager.  However, with cost-of-care pressures in the government sector, Healthcare’s financial results did not meet our expectations.  We have strengthened our multi-pronged plan to improve performance in the Healthcare business, focusing on network recontracting, fraud, waste and abuse, and increased care management initiatives. I am confident that we have the appropriate plan in place to address the underlying issues.”

Due to the strong performance in the Pharmacy business, and the growth of their commercial healthcare business, management increased their profit guidance to a range of $260-280 million, ahead of the expected $235 million consensus.

Management reiterated their guidance for the remainder of 2015 which stands at a range of $250-265 million.  Further, due to cost management strategy, the company revised their Cost of Care + Cost of Goods Sold guidance down from the estimate of $3.6 billion to a range of $3.28-3.48 billion.  Lastly, management recently announced a $200 million share repurchase program that is expected to be completed by 2018.

Magellan’s Increasing Estimates Power MGLN Stock 

As you can see from the graph below, earnings estimates for 2016 have jumped up significantly.

Over the past 30 days, estimates for Q4 15, Q1 16, FY 15, and FY 16; Q4 15 rose from 56 cents per share to 70 cents per share, Q1 16 jumped from 26 cents per share to 50 cents per share, FY 15 improved from 69 cents per share to 84 cents per share, and FY 16 soared from $1.38 to $2.87 per share.

The Bottom Line on Magellan Stock: Buy MGLN 

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