Molina Goes for Stock Split

To infuse greater liquidity and extend share distribution, the board of directors of Molina Healthcare, Inc. (MOH) has authorized a three-for-two stock split of its common stock.

Molina stated that the stock split will be carried out through a stock dividend issue. Molina will issue stock dividend of one share of the company’s common stock for every two shares outstanding.

Accordingly, Molina will distribute the additional shares on May 20 to the shareholders as on May 9, 2011. The trading of Molina shares on a split-adjusted basis will begin on May 23, 2011.

In addition, the stock split will result in the increase in the number of shares of Molina’s common stock outstanding to about 45.87 million shares from 30.84 million, as reported on March 31, 2011.

Besides, the fractional shares will be paid in cash based on the closing market price on the record date.

After the split, the stock price of Molina will reduce since the number of shares outstanding will increase. Although the number of outstanding shares and the stock price change, the market capitalization will remain constant after the split.

Generally, a stock split is done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. However, we believe that the primary motive of Molina is to make shares seem more affordable to small investors, which in turn would end up boosting the demand and drive up prices. It will also enhance the liquidity and maximize the shareholders’ wealth.

Other than Molina, Dollar Financial Corp. (DLLR) also issued a 3:2 stock split in the form of a stock dividend on January 10, 2011.

Molina has reported strong results for first quarter 2011, which benefited primarily from higher-than-expected operating revenues coupled with ramped-up enrollment and increased focus on medical costs.

Molina is also well positioned with improvements across its business lines, despite a challenging premium rate environment.

The company is also growing with expansion plans via acquisitions. Molina’s Medicaid health plan business has advanced its strategic plan by expanding its services and product offerings beyond managed care. We believe that the strategy of growth through acquisitions, increasing revenues and guidance reiteration will be able to attract long-term investors.

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