Last Update 03 Nov 25
Fair value Decreased 9.48%Molina Healthcare's analyst price target has been revised downward from approximately $198 to $179 per share. Analysts cite lower earnings forecasts and ongoing uncertainty in Medicaid and state-level healthcare funding as key drivers of the adjustment.
Analyst Commentary
Wall Street remains divided on Molina Healthcare's outlook, as recent research notes reflect a mix of tempered optimism and pronounced caution. Analysts adjusted their price targets in response to a challenging earnings environment, healthcare policy developments, and the company's evolving margin outlook. Below is a summary of key points raised in recent commentary:
Bullish Takeaways
- Some bullish analysts have raised price targets for Molina, expressing confidence in the company's long-term positioning and sector resilience, particularly as core demand drivers in healthcare remain robust.
- Continued strong free cash flow and financial flexibility are seen as supporting future growth investments and potential M&A activity. These factors underpin a positive long-term bias.
- The maintenance of high ratings and selective upgrades indicate that certain market participants view Molina's fundamental strengths, such as its operational execution and managed care experience, as supporting higher valuation multiples.
- A more constructive view on Medicaid was noted despite difficult market dynamics. Some analysts suggest Molina is better positioned than peers for potential program expansion or regulatory improvement.
Bearish Takeaways
- Bearish analysts significantly lowered price targets, citing multiple earnings misses, repeated downward guidance, and heightened uncertainty around near-term Medicaid margins.
- Risks remain around medical cost pressures as states face budget constraints. Analysts warn of persistent operating headwinds that could pressure earnings through 2026.
- There is skepticism regarding Molina's earnings projections and margin targets, with some doubting the achievability of management's goals, given ongoing program visibility issues and state-level funding uncertainty.
- Concerns were also raised about externally driven factors, such as shifts in Medicaid enrollment, tighter state budgets, and new regulatory benchmarks. These could reduce growth opportunities or exacerbate volatility in earnings estimates.
What's in the News
- Many Affordable Care Act plan enrollees, including Molina members, are facing significant premium hikes for 2026, with average premiums rising by 26%. (The Wall Street Journal)
- Enhanced federal subsidies for ACA plans, which are crucial for keeping coverage affordable, are central to ongoing government shutdown negotiations. Future funding could impact Molina and other insurers. (The Wall Street Journal)
- Recent court rulings have upheld the constitutionality of the federal government’s Medicare Drug Price Negotiation Program, maintaining the current regulatory environment for insurers such as Molina. (The Hill)
Valuation Changes
- Fair Value Estimate has fallen from $197.53 to $178.80, reflecting decreased market confidence in near-term growth and valuation.
- Discount Rate has risen slightly from 6.78% to 6.78%, indicating a marginal increase in perceived risk or required return for investors.
- Revenue Growth projections have decreased from 6.81% to 6.10%, suggesting lower expected expansion in Molina's top-line performance.
- Net Profit Margin forecast has increased marginally from 2.37% to 2.38%, indicating modest improvement in profitability expectations.
- Future Price-to-Earnings (P/E) Ratio estimate has declined significantly from 9.17x to 7.34x, which is consistent with a more cautious earnings outlook and sector valuation compression.
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.
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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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