On Thursday, Baird maintained its Outperform rating on Molina Healthcare (NYSE: NYSE:MOH) shares but reduced the price target to $331 from the previous $405. The adjustment comes as the firm revises its estimates for the company ahead of its third-quarter earnings for 2024.
The revised estimates reflect an anticipation of increased pressure on the medical loss ratio (MLR) in the second half of the year.
The analyst at Baird has adjusted the expected earnings per share (EPS) for Molina Healthcare for the year 2024 to $19.38. This figure is approximately 18% lower than the consensus estimate of $23.51 and the company's guidance of more than $23.50. The revision accounts for the potential incremental MLR pressure anticipated in the third and fourth quarters of 2024.
Baird's forecast includes an estimated 165 basis points (bps) of enterprise MLR pressure for the second half of 2024 and 83 bps for the full year. The MLR measures the percentage of premium revenue spent on medical claims and healthcare services, and an increase can indicate higher costs or lower premiums than expected.
The analyst noted that Molina Healthcare's stock price has declined over the past month due to concerns about rising cost trends. However, the firm believes that the potential 18% pressure on the 2024 EPS is already reflected in the current stock price, suggesting that the market has priced in the anticipated headwinds.
The updated price target of $331 represents Baird's assessment of Molina Healthcare's value considering the revised earnings expectations and the forecasted impact on the MLR. The Outperform rating indicates that Baird continues to view the stock favorably in spite of the expected challenges.
In other recent news, Molina Healthcare demonstrated impressive financial performance in its third-quarter results. The managed care company's earnings surpassed analyst expectations due to robust revenue growth and a notably strong performance in its Marketplace segment.
Molina reported adjusted earnings per share of $6.01, beating the analyst estimate of $5.95. Furthermore, the company's revenue for the quarter reached a significant $10.34 billion, marking an 18% year-over-year increase and exceeding the consensus estimate of $9.92 billion.
Molina's premium revenue also saw a boost, reaching $9.7 billion in Q3, an 18% rise from the same period last year. This growth was attributed to new contract wins, acquisitions, and expansion within its current footprint.
The company's Marketplace segment performed particularly well, with a Medical Care Ratio (MCR) of 73.0%. However, the Medicaid MCR of 90.5% was higher than long-term expectations, mainly due to redetermination-related acuity shifts and increased utilization in certain services.
In light of these recent developments, Molina reaffirmed its full-year 2024 guidance, projecting premium revenue of approximately $38 billion and adjusted earnings of at least $23.50 per diluted share. This forecast indicates a 17% increase in premium revenue and approximately 13% growth in adjusted earnings compared to 2023.
As of September 30, 2024, Molina served approximately 5.6 million members, reflecting an 8% increase from the previous year.
InvestingPro Insights
Recent InvestingPro data provides additional context to Baird's analysis of Molina Healthcare (NYSE: MOH). The company's P/E ratio stands at 15.22, with an adjusted P/E of 14.67 for the last twelve months as of Q2 2024. This relatively low valuation multiple aligns with one of the InvestingPro Tips, which notes that MOH is "Trading at a low P/E ratio relative to near-term earnings growth."
Despite the recent stock price decline mentioned in the article, Molina Healthcare remains profitable, with a revenue of $36.08 billion USD for the last twelve months as of Q2 2024. The company's revenue growth of 13.35% over the same period demonstrates its continued expansion, even as it faces potential MLR pressures.
An InvestingPro Tip highlights that MOH "Holds more cash than debt on its balance sheet," which could provide financial flexibility as the company navigates the anticipated challenges in the healthcare sector. Moreover, the stock is currently trading near its 52-week low, potentially offering an entry point for investors who share Baird's optimistic long-term outlook.
For readers interested in a more comprehensive analysis, InvestingPro offers 13 additional tips for Molina Healthcare, providing a deeper understanding of the company's financial position and market performance.
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