UBS on Medicaid Managed Care: CNC / MOH Model Update

UBS on Medicaid Managed Care: CNC / MOH Model Update

UBS analyst says, "We are updating Centene (NYSE: CNC) and Molina (NYSE: MOH) estimates to reflect impact from TX contracts awarded earlier this month w/incremental annualized revs est at $1B+ and $600m, respectively (while AGP also awarded material new biz at $1B revs, UBS est. already embed gains). With further RFP awards not expected on the immediate horizon, outside of DC newsflow, look for next catalyst for group to come from further state rate clarity as well as MOH (9/15) and AGP (9/16) investor days."

"CNC – RFP wins provide solid line of sight on ~40% 2012 top-line growth: TX win, coupled w/additional “known” tailwinds of KY and LA expansions, sets stage for ~40% rev growth in 2012 (vs 20% in 2011 and 15% LT target)...We now model $2.70 ’12 EPS ($2.55 prior) and note that ‘12 EPS trajectory is likely particularly back-end loaded (est. 41% of EPS in 1H vs. 48% avg in 2007-‘11) given significant new biz ramp."

"MOH – Next catalyst likely 9/15 investor day; Lower PT to $21: While we estimate TX contracts could add $0.20-$0.25 to EPS assuming ~3% normalized margins, we look for impact to be muted in 2012 as the company continues to build scale in the state...While we maintain our Neutral Rating, we lower our Price Target to $21 (from $28) which is based on target multiple of ~12x our 2012 EPS est with revised target multiple in-line with current valuation levels."

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