UnitedHealth vs. Molina: Which will be the fastest-growing health insurance stock in 2015?

The nation's largest insurer, UnitedHealth Group, is projecting double-digit earnings growth next year, but it may be managed care company Molina Healthcare that has the biggest earnings growth among insurers in 2015, according to Todd Campbell, founder of E.B. Capital Markets, who shared his insights in a recent Motley Fool report.

The case for UnitedHealth

Fueled by increasing adoption of Medicare plans and growing Medicaid enrollment, UnitedHealth's revenue for the third quarter of fiscal 2014 grew to $32.76 billion, up from the $30.62 billion in revenue it reported for the same period of last year. In addition, the insurer's Medicare business improved 4 percent and its community and state business increased by 34 percent.

Although those are impressive numbers, with uncertainty still surrounding the Patient Protection and Affordable Care Act, it hasn't been all smooth sailing for UnitedHealth. For instance, in November, after the U.S. Supreme Court agreed to hear a lawsuit challenging the legality of subsidies under the PPACA in states that did not establish their own insurance exchanges, shares of UnitedHealth fell by 2.7 percent.

Even with the uncertainty, UnitedHealth investors still have reason to expect the insurer's earnings in 2015 to outpace this year, according to Mr. Campbell, as UnitedHealth is participating in 23 PPACA health insurance exchanges during the current enrollment period and will continue to benefit from its Medicare and Medicaid businesses.   

The case for Molina Healthcare

Molina Healthcare has greatly benefitted from Medicaid enrollment significantly increasing in its biggest markets, according to Mr. Campbell. Through Medicaid expansion, Molina Healthcare added more than 314,000 members, including 82,200 in the third quarter of this year.

Due to the surge in Medicaid enrollment, Molina Healthcare recorded $2.45 billion in revenue in the third quarter of this year, up from $1.69 billion in revenue in the third quarter of last year. Additionally, the managed care company's net income grew from $7.57 million in the third quarter of last year to $16.12 million in the third quarter of 2014, with net income per share of $0.83.

The year ahead

Although analysts expect UnitedHealth's earnings per share to grow by 8.7 percent in 2015, they believe Molina Healthcare's earnings per share will increase by 106 percent, which is largely based on the predictable revenue path and profit growth Molina Healthcare offers, according to Mr. Campbell.

While UnitedHealth did significantly benefit from its Medicaid business in the past year, the insurer has other businesses which "water down Medicaid's impact on its overall results," said Mr. Campbell. However, with the vast majority of Molina Healthcare's business coming from running state and community Medicaid programs, it doesn't have the same issue of watered down results.

In addition, Mr. Campbell believes speculative investors might see Molina Healthcare as a more attractive investment, since UnitedHealth just decided to fully participate in the PPACA exchanges this year, and it is still unclear how the insurer's participation will "play out."

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