Why is Magellan Health (MGLN) down 32.8% since its last earnings report?

It’s been about a month since Magellan Health’s (MGLN) last earnings report. Shares have lost about 32.8% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Magellan Health due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Magellan Health’s fourth-quarter earnings beat estimates and increased year over year

Magellan Health’s fourth-quarter 2019 earnings per share of $1.24 beat the Zacks Consensus Estimate by 29.2%. Moreover, the financial result was better compared to the year-ago reported loss of 77 cents per share.

Revenues of $1.81 billion declined 2.3% year-over-year due to lower contributions from Managed Care and other services. However, the top line surpassed the Zacks Consensus Estimate by 0.5%.

The company’s segment profit increased by 354.4% year-on-year. Total costs and expenses increased by 5.6% year-on-year due to higher costs of goods sold and depreciation.

The most important events of the whole year

Net revenue for 2019 was $7.3 billion, up 2.2% year-over-year. Adjusted net income for the year was $91.7 per share, up 48.7% year over year.

Segment profit increased 10.8% year over year to $252.7 million. This positive result can be attributed to the solid contribution of the Healthcare segment and the Pharmacy Management segment.

For the full year, unrestricted cash and investments totaled $195.4 million, an increase of 49.8% compared to year-end 2018 levels.

Capital position

Cash flow from operations for the year ended 2019 was $164.8 million, an increase of 42.3% year over year.

As of December 31, 2019, cash and cash equivalents were $272.3 million, a decrease of 16.3% compared to December 31, 2018.

As of December 31, 2019, the company’s total assets decreased 3.7% to $2.9 billion compared to the end of 2018.

Total shareholder equity declined 8% year-over-year to $1.3 billion at the end of 2019.

2020 Guidelines

In 2020, the company expects net revenues in the range of $7-7.4 million. While adjusted net income is expected to be $83 million to $103 million, segment profit for the full year is estimated to be between $250 million and $280 million.

How have estimates changed since then?

Overview of estimates has been on a downward path over the past two months. Due to these changes, the consensus estimate moved -15.32%.

VGM results

Currently, Magellan Health has an average growth score of C, a rating with the same momentum score. Charting a somewhat similar path, the stock was rated a B for value, putting it in the top 40% for this investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Magellan Health carries a Zacks Rank #4 (Sell). We expect a below-average rate of return on stocks in the coming months.

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