Last Update06 Oct 25Fair value Decreased 6.42%
Molina Healthcare's analyst price target has decreased from $202.43 to $189.43. Analysts cite growing industry cost pressures, challenging 2026 Star plan benchmarks, and dampened near-term earnings visibility across managed care companies as key reasons for this revision.
Analyst Commentary
Recent Street research highlights a range of perspectives from market watchers regarding Molina Healthcare’s outlook, with viewpoints shaped by broader industry developments and company-specific updates.
Bullish Takeaways
- Some bullish analysts note that certain health insurers are expected to retain a high percentage of members in top-rated plans. This signals ongoing operational resilience and potential for stable membership retention in high-performing product lines.
- Updates on risk adjustment data and statutory filings support comfort with 2025 earnings guidance and suggest that, in the near term, execution remains broadly on track despite sector volatility.
- Industry surveys indicate solid earnings visibility in the hospital segment, providing an adjacent supportive backdrop that could help offset cost headwinds impacting managed care names like Molina Healthcare.
Bearish Takeaways
- Bearish analysts point to increasingly challenging Star plan benchmarks for 2026. They note that cut points have become tougher for the majority of plans, which may pressure plan ratings and associated reimbursement in future periods.
- There has been a noticeable trend of price target reductions and ratings downgrades for Molina Healthcare, reflecting cautiousness about near-term earnings visibility, ongoing cost pressures, and potentially softening risk-reward tradeoff as regulatory and industry dynamics evolve.
- Analysts have highlighted unexpected cost trend increases flagged in recent company updates, as well as incremental headwinds across multiple lines of business, dampening confidence in execution and valuation upside.
- The combination of heightened industry cost pressure, increased volatility tied to policy changes, and signs of rate and trend instability present ongoing challenges to growth and margin expansion.
What's in the News
- Enhanced subsidies for Affordable Care Act health insurance are central to ongoing government shutdown negotiations. Decisions about their extension could impact over 22 million Americans receiving aid (The Wall Street Journal).
- Judges in Texas and Connecticut have dismissed cases challenging the constitutionality of the Medicare Drug Price Negotiation Program, further solidifying federal efforts to negotiate pharmaceutical prices (The Hill).
- U.S. health insurers have seen prescription drug denial rates rise from 18.3% to 22.9% between 2016 and 2023, attributed to higher costs of new medications and increased claims automation (The New York Times).
- Insurers are seeking double-digit premium increases for 2026 ACA marketplace plans. They cite rising health care costs and prospective federal subsidy reductions as driving factors (The Wall Street Journal).
- A policy and legal debate is intensifying over proposals to expand the scope of the Medicare drug price negotiation program, drawing resistance from the pharmaceutical industry (Bloomberg Law).
Valuation Changes
- Fair Value Estimate has declined from $202.43 to $189.43, reflecting a notable downward revision in analysts' outlook for Molina Healthcare.
- Discount Rate remains unchanged at 6.78%, indicating consistent risk assessment by analysts despite other valuation adjustments.
- Revenue Growth projections are effectively flat, staying near 6.80%, with only a negligible decrease from previous estimates.
- Net Profit Margin expectation holds steady at approximately 2.51%, showing stability in anticipated profitability levels.
- Future P/E ratio has decreased from 8.89x to 8.32x. This points to more conservative expectations for Molina Healthcare’s earnings multiple going forward.
Key Takeaways
- Molina's successful RFP wins and Medicaid strategy are poised to enhance revenue, EPS growth, and net margins through efficient care coordination.
- Strategic acquisitions and disciplined medical cost management are expected to stabilize margins and boost future earnings, supporting capital deployment and growth.
- Potential Medicaid funding cuts and operational challenges may hinder Molina Healthcare's revenue growth and earnings stability amid rising medical costs and integration risks.
Catalysts
About Molina Healthcare- Provides managed healthcare services to low-income families and individuals under the Medicaid and Medicare programs and through the state insurance marketplaces.
- Molina's successful track record of winning RFPs, including new contracts in Nevada and Illinois, is expected to drive significant revenue growth, with projected incremental annual premium revenue of approximately $800 million. This should positively impact revenue and EPS growth.
- The company's focus on leveraging its existing Medicaid footprint to serve high-acuity, low-income Medicare beneficiaries is working well and may enhance net margins by streamlining care coordination and administrative costs.
- Expected Medicaid rate adjustments indicate a slightly higher outcome than previously anticipated. This adjustment is likely to impact revenue favorably by aligning payments more closely with anticipated medical trends.
- Molina's acquisition pipeline, comprising many actionable opportunities, could lead to accretive additions and contribute to future earnings. Their strategy to deploy capital in acquisitions is expected to support EPS growth.
- Molina's disciplined approach to medical cost management, amidst enhancements in the rate environment, is likely to stabilize or improve net margins by mitigating the impact of rising medical costs.
Molina Healthcare Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Molina Healthcare's revenue will grow by 6.8% annually over the next 3 years.
- Analysts assume that profit margins will shrink from 2.7% today to 2.6% in 3 years time.
- Analysts expect earnings to reach $1.3 billion (and earnings per share of $24.06) by about September 2028, up from $1.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.1 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.4x on those 2028 earnings, down from 8.7x today. This future PE is lower than the current PE for the US Healthcare industry at 21.0x.
- Analysts expect the number of shares outstanding to decline by 5.24% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.
Molina Healthcare Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Potential Medicaid funding cuts or program changes could negatively impact Molina Healthcare's revenue and earnings trajectory.
- The implementation of new Marketplace program integrity initiatives and changes to enhanced subsidies could affect membership growth and lead to potential revenue fluctuations.
- The loss of the Virginia Medicaid contract midyear could reduce projected revenue and earnings if not offset by other membership gains.
- The moderate increase in medical costs due to high-cost drugs and behavioral health services may put pressure on net margins if rate adjustments do not adequately cover the trend.
- New acquisitions, such as ConnectiCare, running higher than target MCR initially could impact earnings if Molina is unable to effectively manage costs and achieve expected integration efficiencies.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $196.714 for Molina Healthcare based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $330.0, and the most bearish reporting a price target of just $153.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $50.7 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 8.4x, assuming you use a discount rate of 6.8%.
- Given the current share price of $181.54, the analyst price target of $196.71 is 7.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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