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.