Is Molina Healthcare (MOH) Pricing Reflect Its Value After A 40% One Year Share Price Fall

• Are you wondering whether Molina Healthcare's share price reflects its true worth, or if the recent swings have opened up an opportunity for you?
• The stock last closed at US$178.46, with returns of 7.2% over 7 days and 17.5% over 30 days. Over 1 year the return stands at a 40.2% decline, and the 3 year and 5 year returns show 39.8% and 26.2% declines respectively.
• These moves sit against an ongoing backdrop of attention on managed care providers. Investors keep a close eye on factors such as membership growth, policy shifts that affect reimbursement, and how companies control medical costs over time. Molina Healthcare is often discussed in that context as a multi state health insurer focused on government sponsored programs like Medicaid and Medicare, which can shape how the market assesses its risk and reward profile.
• On Simply Wall St's valuation checks, Molina Healthcare currently has a value score of 5 out of 6. Next, we will look at how different valuation methods arrive at that result and why an extra layer of analysis can give you an even clearer view of value by the end of this article.

Find out why Molina Healthcare's -40.2% return over the last year is lagging behind its peers.

Approach 1: Molina Healthcare Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model looks at the cash Molina Healthcare may generate in the future and then discounts those projected cash flows back to today to estimate what the business could be worth in $.

For Molina Healthcare, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is a loss of $573.3 million. Despite that starting point, the DCF uses analyst inputs and further projections to estimate future cash flows, including projected free cash flow of $1,228 million in 2029 and a series of annual estimates through 2035 provided by Simply Wall St.

After discounting those projected cash flows, the model arrives at an estimated intrinsic value of about $649.18 per share. Compared with the recent share price of US$178.46, this implies a 72.5% discount. This suggests the stock appears significantly undervalued based on these cash flow assumptions alone.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Molina Healthcare is undervalued by 72.5%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Molina Healthcare.

Approach 2: Molina Healthcare Price vs Earnings

For a profitable company, the P/E ratio is a useful way to think about what you are paying for each dollar of current earnings. Investors typically accept a higher P/E when they expect stronger growth or see lower risk, and look for a lower P/E when they see slower growth or higher risk.

Molina Healthcare currently trades on a P/E of 10.39x. That sits below the wider Healthcare industry average of about 22.24x and also below the peer group average of 29.66x. On simple comparisons, the stock trades at a lower multiple than both its sector and closest peers.

Simply Wall St also calculates a proprietary “Fair Ratio” for Molina Healthcare, which is 21.98x. This is the P/E level that would be expected after considering factors such as earnings growth, profit margins, industry, market cap and company specific risks. Because it adjusts for these elements, the Fair Ratio can be more tailored than a basic comparison with industry or peer averages. Lining this up with the current P/E of 10.39x suggests the shares are trading below that Fair Ratio.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Molina Healthcare Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce Narratives. These are simple stories you create about Molina Healthcare that link your view on its contracts, Medicaid exposure, margins and growth to explicit forecasts for revenue, earnings and P/E, and then to a fair value you can compare with the current share price on Simply Wall St’s Community page. Narratives are updated automatically when new earnings, policy news or analyst targets are published, such as the current consensus of US$170 with a bullish US$330 view and a cautious US$153 view. This allows you to see how different investors interpret the same information and decide for yourself whether the gap between price and your own fair value suggests you should wait, add or reduce.

Do you think there's more to the story for Molina Healthcare? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com