MOH Stock Study (5-30-24)

I recently did a stock study on Molina Healthcare, Inc. (MOH) with a closing price of $315.00.

M* writes:

     > Molina Healthcare Inc offers healthcare plans focused on Medicaid-related
     > solutions for low-income families and individuals. Its health plans are
     > operated by a network of subsidiaries, each of which is licensed as a
     > health maintenance organization (HMO). It has four segments: Medicaid,
     > Medicare, Marketplace and Others. The Medicaid, Medicare, and Marketplace
     > segments represent the government-funded or sponsored programs under
     > which it offers managed healthcare services. The Other segment, which is
     > insignificant to its consolidated results of operations, includes
     > long-term services and supports consultative services in Wisconsin. It
     > generates majority revenue from Medicaid segment.

Over the last 10 years, this large-size company has grown sales and EPS at annualized rates of 13.7% and 30.8%, respectively (’16 and ’17 excluded due to outlier losses that otherwise result in inflated EPS growth rates). Lines (sans ’16 and ’17) are mostly up, straight, and parallel with a sales dip in ’19 and EPS dip in ’20.

Over the last decade, PTPM trails peer and industry averages despite increasing from 1.4% (’14) to 4.3% (’23) with a last-5-year mean of 4.3%. ROE leads peer and industry averages by increasing from 6.7% (’14) to 28.2% (’23) with a last-5-year mean of 29.8%. Debt-to-Capital is higher than peer and industry averages despite falling from 47.3% (’14) to 36.1% (’23) for a last-5-year mean of 44.9%.

Quick Ratio is 1.44 and Interest Coverage is 14.3. Value Line gives an “A” rating for Financial Strength.

With regard to sales growth:

• YF projects YOY 16.6% and 7.2% for ’24 and ’25, respectively (based on 11 analysts).
• Zacks projects YOY 16.8% and 8.7% for ’24 and ’25, respectively (6 analysts).
• Value Line projects 6.0% annualized growth from ’23-’28.
• CFRA projects 20.0% YOY and 13.4% per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year ACE of 11.2%.

My 6.0% per year forecast is at the bottom of the range.

With regard to EPS growth:

• MarketWatch projects 13.1% and 14.0% per year for ’23-’25 and ’23-’26, respectively (based on 16 analysts).
• Nasdaq.com projects 13.7% YOY and 13.6% per year for ’25 and ’24-’26 [8, 7, and 3 analyst(s) for ’24, ’25, and ’26].
• Seeking Alpha projects 4-year annualized growth of 12.1%.
• YF projects YOY 13.0% and 13.7% for ’24 and ’25 (12 analysts) along with 5-year annualized growth of 13.3%.
• Zacks projects YOY 12.9% and 13.7% for ’24 and ’25, respectively (7), along with 5-year annualized growth of 13.8%.
• Value Line projects 9.7% annualized growth from ’23-’28.
• CFRA projects 6.4% YOY and 9.0% per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 14.0%.

My 9.0% forecast is below the long-term-estimate range (mean of four: 12.2%). Initial value is 2024 Q1 EPS of $18.43/share rather than ’23 EPS of $18.77.

My Forecast High P/E is 17.0. Over the past decade, high P/E trends down from 40.2 (’14) to 20.5 (’23) with a last-5-year mean of 22.2 and a last-5-year-mean average P/E of 17.9. I am below the latter [only ’18 (14.5) and ’19 (13.9) are lower].

My Forecast Low P/E is 13.0. Over the past decade, low P/E trends down from 24.9 (’14) to 13.6 (’23) with a last-5-year mean of 13.6. I am forecasting near the bottom of the range (only ’19 and ’20 are lower at 9.2).

My Low Stock Price Forecast (LSPF) of $239.60 is default based on initial value given above. This is 23.9% less than the previous close and 10.1% less than the 52-week low.

These inputs land MOH in the HOLD zone with a U/D ratio of 1.9. Total Annualized Return (TAR) is 8.3%.

PAR (using Forecast Average—not High—P/E) of 5.6% is less than I seek for a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 10 studies done in the past 90 days (my study and 4 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.0%, 11.5%, 20.0, and 13.5, respectively. I am lower across the board. Value Line projects a future average annual P/E of 17.0 that is greater than MS (16.8) and greater than mine (15.0).

MS high / low EPS are $31.76 / $18.43 versus my $28.36 / $18.43 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $33.20 is greater than both.

MS LSPF of $250.70 implies a Forecast Low P/E of 13.6 versus the above-stated 13.5: both roughly equivalent. MS LSPF is 4.6% greater than mine resulting in more aggressive zoning.

TAR (over 15.0% preferred) is much less than MS 12.9%. Despite the small MS sample size, I believe MOS to be robust in the current study relative to analyst estimates and historical P/E ranges.

With regard to valuation, PEG is 1.0 and 1.8 per Zacks and my projected P/E (fairly valued). Relative Value [(current P/E) / 5-year-mean average P/E] is also fair at 0.98.

MOH is a BUY under $300/share. All else being equal, given my forecast high price ~$482 the stock needs to fall about 74 points to meet the BI TAR criterion.