Analyst Kevin Fischbeck of Bank of America Securities maintained a Sell rating on Molina Healthcare (MOH – Research Report), retaining the price target of $439.00.
Kevin Fischbeck’s rating is based on the observation that Molina Healthcare’s first-quarter performance showed mixed results, with the company beating revenue and earnings estimates, yet displaying signs of pressure in its core business metric, the Medical Loss Ratio (MLR). Molina’s MLR was higher than expected, which raises concerns about its cost management. Despite maintaining their full-year guidance, potential contract losses in Virginia and Florida could impact future performance and were not accounted for in the initial outlook. Fischbeck also acknowledges the absence of short-term catalysts, such as new Request for Proposals (RFPs), which could drive the stock’s performance, contributing to the decision to maintain an Underperform rating.
Further analysis suggests that the MLR is running hotter than anticipated, a trend that historically does not align with the first quarter being typically lower than the full year number. This anomaly, coupled with a quarter-over-quarter decrease in days in claims payable (DCPs), indicates that the MLR warrants close monitoring. On the positive side, earnings per share (EPS) outperformed due to increased revenues, especially from Medicaid rates. Notably, marketplace membership grew significantly without aggressive expansion efforts by Molina, hinting at a rapidly expanding market. However, these pockets of outperformance do not appear to be enough to offset the concerns surrounding the MLR and potential margin normalization, leading to the Sell rating.
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Molina Healthcare (MOH) Company Description:
Molina Healthcare, Inc. engages in the provision of health care services. It operates through the Health Plans and Other segments. The Health Plans segment consists of health plans in 11 states and the Commonwealth of Puerto Rico and includes direct delivery business. The Other segment includes the historical results of the MMIS and behavioral health subsidiaries. The company was founded by C. David Molina in 1980 and is headquartered in Long Beach, CA.
