From Standard & Poor's Equity Research

JP Morgan upgraded Molina Healthcare (MOH) to neutral from underweight, after the company posted quarterly results.

Analyst William Georges believes the company is appropriately managing its medical loss ratio (MLR) after a period of instability and uncontrolled medical costs. With solid second quarter results, he says the company has posted four straight quarters of improved MLR, which he expects will settle into a normalized range of 84%-85%, vs. 87% in 2005, and 92% in the second quarter of 2005. He notes that second quarter 2006 MLR was 84.8%, 150 basis points below his estimate, due to favorable cost trends in existing markets, consistent medical management, and stable price-cost spread. He ups his $1.46 2006 earnings per share (EPS) estimate to $1.62.

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