The Ohio Department of Jobs and Family Services has reportedly not selected Molina’s Ohio health plan to participate in a freshly issued Ohio Medicaid Managed Care Plan Request for application.  Molina’s filing disclosed the apparent contract loss and it appears as of now that the existing contract that Molina has with Ohio will expire at the end of 2012 without being renewed.  Molina shares are down 22% at $27.15 against a 52-week range of $13.93 to $36.83.  Centene is also listed as one of the losers here and its shares are down 12.6% at $44.41 against a 52-week range of $25.28 to $50.40.

The Wall Street Journal also noted that AMERIGROUP Corporation (NYSE: AGP) and WellCare Health Plans, Inc. (NYSE: WCG) are not being awarded new contracts in Ohio but that Centene was planning an effort to appeal the decision that would impact 9% of the 1.8 million members.  WellCare is down 6.6% at $69.35 against a 52-week range of $33.29 to $74.41.  AMERIGROUP shares are down the least with a drop of 4.7% at $64.22 against a 52-week range of $37.57 to $75.74.

These individual state contract losses are not always set in stone due to appeals and due to lobbying efforts.  That being said, you can clearly see here how state contract awards and losses allow many companies to live by the sword and die by the sword.

JON C. OGG

Large insurers like Wellpoint Inc. (NYSE: WLP), UnitedHealth Group Inc. (NYSE: UNH), Aetna Inc. (NYSE: AET), and Cigna Corp. (NYSE: CI) are in hot pursuit of opportunities to offer management services to state-run Medicaid programs, in the belief that a slew of new customers will more than offset any losses attributable to the ACA. Politicians continue to squabble over ideology, with the conservatives seeking to kill the ACA and liberals wanting to maintain it.

The insurance companies know what they want. Wellpoint posted EPS of $6.94 in 2010 and has reiterated its guidance for EPS of “at least” $6.30 in 2011. The company has also declared a quarterly dividend of $0.25, beginning with the current quarter, and has announced that it will buy back some $1.6 billion in shares by the end of 2011.

Wellpoint is the largest provider in the managed-Medicaid market, and by virtue of its size will be a formidable competitor to the other leading managed-Medicaid providers. Other leading managed-Medicaid providers include Centene Corp. (NYSE: CNC), Amerigroup Corp. (NYSE: AGP), WellCare Health Plans, Inc. (NYSE: WCG), and Molina Heathcare Inc. (NYSE: MOH). None of these has a market cap of more than about $2.5 billion, about a tenth the size of Wellpoint.

Of the large providers, Aetna has forecast 2011 operating profit of $3.70-$3.80/share, compared with $3.68 in 2010. The company, like Wellpoint, UnitedHealth, and Cigna, experienced lower health care use in 2010. That is surely the result of higher premiums, higher deductibles, and fewer visits to the doctor from those insured.

Six states already have a requirement that Medicaid patients enroll in managed care plans, and another ten have similar programs under consideration. Under the managed care plans, Medicaid payments will go to the plan administrators, not directly to doctors, hospitals, and nursing homes as is currently the case in most states. In a managed care system, the states pay a fixed amount to the insurer for each Medicaid patient. Then its up to the insurer to manage costs.

The argument against the managed care plans is that because the goal is to keep costs down, patients have difficulty getting the care they need.

The vast new market open to insurers by way of managed Medicaid plans is likely to be the driver of insurers’ profits through 2014. Higher premiums, higher deductibles, and lower health care use will also contribute to insurers growth, at least for the next year or two. But if the ACA is not repealed or starved financially, premiums should start to moderate, deductibles should get smaller, and patients should begin consulting their doctors again, without driving government costs through the roof.

Paul Ausick

Avago Technologies Limited (NASDAQ: AVGO) has been public barely one year, but the a fairly short period of time, yet the company just filed to sell up to 24,840,000 ordinary shares.  All shares being sold are on behalf of holders rather than coming from the company via joint book-runners of Deutsche Bank Securities, Barclays Capital, Morgan Stanley and Citi.  Shares were down some 3.6% at $21.50 per share in the after-hours session versus a 52-week trading range of $14.33 to $23.69.

DCP Midstream Partners LP (NYSE: DPM) has filed to sell 2.6 million common units to reduce its debt balances under its revolving credit facility.  BofA Merrill Lynch, Citigroup, and Morgan Stanley will be the joint book-running managers of the offering.  This comes to nearly $90 million based upon the $33.83 unit price close on Tuesday versus a market cap of $1.17 billion.

EV Energy Partners LP (NASDAQ: EVEP) filed to sell 3 million common units to fund part of the purchase price of the recently announced Mid-Continent region acquisition.  Citi, Raymond James, RBC Capital Markets, Wells Fargo Securities and UBS will act as joint book-running managers in the offering.  This will generate close to $100 million in proceeds versus a market cap of $959 million.

Juniper Networks, Inc. (NASDAQ: JNPR) just filed a shelf registration statement with the SEC that would allow the networking company to sell up to $1.5 billion of mixed securities.  The company can sell any combination of common  or preferred stock, depository shares, warrants, debt securities, and/or units.  No underwriters were named, and the use of proceeds will be earmarked for for general corporate purposes… “which may include working capital, capital expenditures, other corporate expenses and acquisitions of complementary products, technologies or businesses.”  Juniper’s market cap is $15 billion.

Molina Healthcare (NYSE: MOH) priced a 4 million share secondary offering of common stock at $27.00 per share versus a $27.54 close Tuesday and versus a 52-week trading range of $17.05 to $31.80.  The company will reduce its borrowings under its $200 million senior secured credit facility with the proceeds, and Molina noted that this credit facility had an outstanding balance of $105 million. BofA Merrill Lynch and J. P. Morgan Securities were acting as joint book-running managers for the sale.

Regency Energy Partners LP (NASDAQ: RGNC) filed to sell 14 million common units to pay down its outstanding debt under its revolving credit facility.  Morgan Stanley, BofA Merrill Lynch, Barclays Capital, Citi, Credit Suisse, J.P. Morgan, UBS, and Wells Fargo are listed as the joint book-running managers for the sale.  This will generate about $345 million based on current prices versus a market cap of $2.3 billion.

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JON C. OGG

• ARM Holdings (ARMH) Raised to Buy at UBS.
• Biogen-Idec (BIIB) Raised to Buy at Goldman Sachs.
• Caterpillar (CAT) Raised to Neutral from Sell at UBS.
• Coventry Health Care (CVH) Raised to Outperform at Wachovia.
• Hudson City Bancorp (HCBK) Started at Overweight at Barclays.
• Lennar (LEN) Raised to Buy at Citigroup.
• Molina Healthcare (MOH) Raised to Neutral at Goldman Sachs.
• Tetra Tech Inc. (TTEK) Started as Buy at Piper Jaffray.

Jon C. Ogg
January 27, 2009