Deep-dive of Molina Healthcare

Hey Everyone!

Wanted to pick the communities brain on a stock investment I am very excited about. Want to make sure I am not missing anything.

Stock in consideration: Molina Healthcare (MOH)

Reason for DD

• PE of 9 against its long-time average of 15-25
• 50% draw-down

Criteria to invest in the stock: Margin of safety at current levels

Context and drivers of correction

• MOH was trading at 300 until June, after which the stock saw a ~50% correction due to negative guidance revisions
• EPS guidance for 2025 is at $14 as opposed to initial guidance of 24.5. On the face of it, a 40% downward guidance revision would justify a 40-50% price drop
• The break down of EPS revision and remediation are indicated below. The drivers of downward revision are all due to higher MCR (at a high-level0

• So,
  • Marketplace EPS can be restored.
  • Medicaid EPS is harder to restore, but for my base case I will assume a modest 5-6% growth at these levels

Sector Outlook

• Trump has indicated that he may cut spends on Medicaid (75% of MOH revenue)
• Expectation is $1T in 10 years. I would assume $100B, accounting for about 13-15% of the revenue
• This checks out with management commentary that they are more concerned about premiums as opposed to membership
• In the worst case scenario I would expect revenues to drop by 14-15%
  • This is the absolute worst case. In all probability a federal revenue cut will be compensated by state funds

Stock Price

I should do a DCF instead of using a lazy multiplier, but I wanted to get a quick sense check from the community before I spend more time so please bear with me.

|| || |Segment|Best Case|Average Case|Worst Case| |Marketplace (ACA)|3|2|0| |Medicare|0|0|0| |Medicaid|19|17|15| |Total|22|19|15| |Stock Price (PE of 15)|330|285|225|

Even in the worst case I see a price of 225. Is this a screaming buy? I think so. What do you think?

Disc: Not invested, looking to start. Not investment advice