Company Reports

After several years of elevated utilization that has not been fully offset by rate increases yet, covered MCO shares have risen about 35% on average since our last managed care industry report in September 2025, in anticipation of rising profits in at-risk medical insurance plans.

Molina Healthcare reported second-quarter results that included a 6% revenue decline on a midteens membership drop and 10% revenue per member increase. Margins remained under pressure, too, with adjusted EPS declining over 70% to $1.51 per share, albeit above FactSet consensus of $1.39.

Molina Healthcare offers at-risk medical insurance plans through government-sponsored programs, specifically Medicaid, Medicare, and the individual exchanges. It aims to gain business in these end markets by providing high-quality plans at low costs to customers. Molina looks laser-focused on medical cost and general and administrative expense management. That focus appears to help Molina generate economic profits and win business in its key end markets.

At its investor day on May 8, Molina set a target of $25 of adjusted EPS for 2029, up from at least $5 in 2026, primarily on pretax margin expansion from less than 1% in 2026 to about 2.5% by 2029. Shares declined about 3% in intraday trading on this news.

Molina reported first-quarter results that included a 3% revenue decline and a 61% decline in adjusted EPS to $2.35. Management also maintained its 2026 guidance, including a 2% revenue decline and adjusted EPS of at least $5. Shares rose over 10% in early trading.

After hours on April 6, the Centers for Medicare & Medicaid Services released its final rate notice for the 2027 Medicare Advantage program, which included a 2.5% overall increase, compared with a flat initial rate notice in late January.

Molina Healthcare's unexpected fourth-quarter loss contributed to the firm only generating $11.03 in adjusted earnings per share in 2025, missing prior expectations of about $14. The firm cut its initial outlook for 2026 and now expects at least $5 in adjusted EPS, down from about $14 previously.

Molina Healthcare provides at-risk medical insurance plans through government-sponsored programs, specifically Medicaid, Medicare, and the individual exchanges. It aims to gain business in these end markets by providing high-quality plans at low costs to customers. Molina looks laser-focused on medical cost and general and administrative expense management. That focus appears to help Molina generate economic profits and win business in its key end markets.

After hours on Jan. 26, the Centers for Medicare & Medicaid Services released its initial rate notice for the 2027 Medicare Advantage program, which included a flat overall rate increase rather than the 5% increase in 2026. Most of that differential is related to new risk assessment-related changes.

Molina provides at-risk medical insurance plans through government-sponsored programs, specifically Medicaid, Medicare, and the individual exchanges. It aims to gain business in these end markets by providing high-quality plans at low costs to customers. Molina looks laser-focused on medical cost and G&A expense management. That focus appears to help Molina generate economic profits and win business in its key end markets.

We have initiated coverage on Molina, which provides at-risk medical insurance plans through Medicaid, the individual exchanges, and Medicare.

We are maintaining our fair value estimate for Molina Healthcare MOH after the company reported good first-quarter results. First-quarter premium revenue increased 18% from the prior year, driven by premium increases, business mix shifts, and 10% higher membership. The medical cost ratio (medical costs as a percentage of premium revenue) deteriorated in the quarter, to 86.1% from 85.8%. California is causing the most trouble for Molina at the moment, as the medical cost ratio there increased to 94.5% from 88.2% in the prior-year quarter. Molina will have to bring this metric down dramatically if it wants to continue operating in California over the long run. On the other hand, the company made significant progress in Ohio by negotiating more favorable contracts with health-care providers and a 5% rate increase with regulators. The medical cost ratio in Ohio improved to 84.3% from 90.3% last year.

After the market close Friday, the Centers for Medicare & Medicaid Services released its preliminary outlook for 2010 Medicare Advantage (MA) payment rates. Proposed rate increases clearly did not meet the market's expectations, sending stock prices of managed-care organizations (MCOs) plunging Monday. Medicare-focused MCOs were the hardest hit, with Humana HUM and HealthSpring HS both down more than 20% in the morning. Five-star-rated UnitedHealth UNH, which has a significant Medicare presence, was also down more than 13%, but even companies with relatively little Medicare exposure, like Aetna AET, are being punished.

Molina Healthcare MOH reported fourth-quarter and full-year 2008 results, and we're maintaining our fair value estimate. Management's outlook for 2009 earnings per share between $2.20-$2.40 is considerably higher than the estimate built into our model.

We had originally thought that the recession could have both negative and positive effects on the Medicaid managed-care organizations we cover: Amerigroup AGP, Centene CNC, Molina Healthcare MOH, and WellCare Health Plans WCG. On the one hand, rising unemployment leads to increased Medicaid eligibility and enrollments. On the other hand, state budgets have come under significant strain from falling tax revenue and rising expenses, and Medicaid is a prime target for cuts.

We expect Molina Healthcare's growth trajectory to continue in coming years as the recession pushes more Americans onto Medicaid rolls and state and federal governments take action to reduce the number of uninsured. However, Medicaid managed care remains a highly competitive industry with low barriers to entry, and we think Molina lacks an economic moat.

We're keeping Molina Healthcare MOH under review as we transfer coverage to a new analyst. We will publish a new analysis shortly.

We're putting Molina Healthcare MOH under review as we transfer coverage to a new analyst. We will publish a new analysis shortly.