Molina Healthcare (MOH)

Healthcare insurance company Molina Healthcare (NYSE:MOH) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 12.2% year on year to $11.15 billion. Its non-GAAP profit of $6.08 per share was 2.1% above analysts’ consensus estimates.

Company Overview

Founded in 1980 as a provider for underserved communities in Southern California, Molina Healthcare (NYSE:MOH) provides managed healthcare services primarily to low-income individuals through Medicaid, Medicare, and Marketplace insurance programs across 21 states.

Upfront premiums collected by health insurers lead to reliable revenue, but profitability ultimately depends on accurate risk assessments and the ability to control medical costs. Health insurers are also highly sensitive to regulatory changes and economic conditions such as unemployment. Going forward, the industry faces tailwinds from an aging population, increasing demand for personalized healthcare services, and advancements in data analytics to improve cost management. However, continued regulatory scrutiny on pricing practices, the potential for government-led reforms such as expanded public healthcare options, and inflation in medical costs could add volatility to margins. One big debate among investors is the long-term impact of AI and whether it will help underwriting, fraud detection, and claims processing or whether it may wade into ethical grey areas like reinforcing biases and widening disparities in medical care.

Molina Healthcare's primary competitors in the Medicaid managed care space include Centene Corporation, CVS Health Corporation, Elevance Health (formerly Anthem), UnitedHealth Group, and various large not-for-profit healthcare organizations. In the Marketplace segment, Centene Corporation is Molina's main competitor for low-income members.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $41.87 billion in revenue over the past 12 months, Molina Healthcare boasts impressive economies of scale. It may not be as large as heavyweights such as UnitedHealth Group and The Cigna Group from a topline perspective, but its heft is still an important advantage in a healthcare industry that is heavily regulated, complex, and resource-intensive.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Molina Healthcare grew its sales at an impressive 19.4% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Molina Healthcare’s annualized revenue growth of 13.8% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

We can dig further into the company’s revenue dynamics by analyzing its number of customers, which reached 5.8 million in the latest quarter. Over the last two years, Molina Healthcare’s customer base averaged 4.1% year-on-year growth. Because this number is lower than its revenue growth, we can see the average customer spent more money each year on the company’s products and services.

This quarter, Molina Healthcare reported year-on-year revenue growth of 12.2%, and its $11.15 billion of revenue exceeded Wall Street’s estimates by 2.6%.

Looking ahead, sell-side analysts expect revenue to grow 7.5% over the next 12 months, a deceleration versus the last two years. We still think its growth trajectory is satisfactory given its scale and suggests the market sees success for its products and services.

Molina Healthcare was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.2% was weak for a healthcare business.

Looking at the trend in its profitability, Molina Healthcare’s operating margin decreased by 1.2 percentage points over the last five years. A silver lining is that on a two-year basis, its margin has stabilized. We like Molina Healthcare and hope it can right the ship.

In Q1, Molina Healthcare generated an operating profit margin of 3.9%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Molina Healthcare’s EPS grew at a spectacular 14.6% compounded annual growth rate over the last five years. However, this performance was lower than its 19.4% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Molina Healthcare’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Molina Healthcare’s operating margin was flat this quarter but declined by 1.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Molina Healthcare reported EPS at $6.08, up from $5.73 in the same quarter last year. This print beat analysts’ estimates by 2.1%. Over the next 12 months, Wall Street expects Molina Healthcare’s full-year EPS of $23 to grow 11.4%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Molina Healthcare has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.2%, subpar for a healthcare business.

Taking a step back, we can see that Molina Healthcare’s margin dropped by 9.3 percentage points during that time. If the trend continues, it could signal it’s in the middle of a big investment cycle.

Molina Healthcare’s free cash flow clocked in at $168 million in Q1, equivalent to a 1.5% margin. This cash profitability was in line with the comparable period last year but below its five-year average. We wouldn’t read too much into it because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

Companies with more cash than debt have lower bankruptcy risk.

Molina Healthcare is a profitable, well-capitalized company with $9.29 billion of cash and $3.77 billion of debt on its balance sheet. This $5.53 billion net cash position is 31.5% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Molina Healthcare beat analysts’ revenue and EPS expectations this quarter. We were also happy its customer base narrowly outperformed Wall Street’s estimates. On the other hand, its EBITDA missed. Still, this quarter had some key positives. The stock remained flat at $332 immediately after reporting.

Updated: May 24, 2025 at 11:57 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Molina Healthcare.

In our opinion, Molina Healthcare is a solid company. To kick things off, its revenue growth was impressive over the last five years. And while its cash profitability fell over the last five years, its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, its scale gives it meaningful leverage when negotiating reimbursement rates.

Molina Healthcare’s P/E ratio based on the next 12 months is 11.9x. Looking at the healthcare space right now, Molina Healthcare trades at a compelling valuation. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $360.24 on the company (compared to the current share price of $305.23), implying they see 18% upside in buying Molina Healthcare in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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