About Molina Healthcare
Healthcare is a very, very fascinating topic of discussion and we have written about it before.
One thing we think is worth pondering regarding the overall healthcare system is related to healthcare providers and the patients they serve and our opinion(s) regarding the apparent misalignment of incentives between the two.
After all, one of the co-founders of MacroHint is an economics major and the basic idea of incentives are an absolute cornerstone in the field.
While we don’t think it would be all that necessary or relevant to offer a complete breakdown of our thoughts on the misalignment of incentives within the industry, we certainly do not mind momentarily airing our grievances.
If you’re not all that interested, please feel free to scroll down a few paragraphs, as we completely understand.
Healthcare companies (think of the major players such as UnitedHealth Group, Cigna and Humana, among a few others that may or may not instantly come to mind) traditionally produce the vast amount of its revenues through the premiums it earns from its patients, whether it is by means of an individual healthcare plan or maybe a health insurance plan through one’s employer.
Patients pay these (usually monthly) premiums (whether it is a lot or relatively inexpensive, the general rationale behind this being that the more you pay, the better the healthcare protection and services, such as doctors and other patient-related resources, and the less you pay, well, you know the rest of that story) to their respective insurer and in return, they are supposed to receive the outlined healthcare services and coverage in the event of them becoming sick or needing specific care services for an ailment or perhaps an unforeseen health-related circumstance (i.e., breaking one’s leg).
It’s the same principle of regular insurance but in the context of one’s health.
You pay in, probably never needing to actually use the service you pay for but it seems as though the minute you cancel your plan, you have a bad health spell and are stuck with paying out of pocket, which in more cases than none is an absolute nightmare.
As one could assume, fear is a powerful motivator in the insurance industry, broadly.
At any rate, the plainly sad fact of the matter is that if more people become less sick, this doesn’t objectively bode well for a health insurer, as this could lead to more canceling their plans since the perceived likelihood of themselves needing the services of a health insurance company drops.
This being the case, it seems to be in the best interest of health insurance companies to have patients that do live for a rather long time but are simultaneously not in the best state of health, as this allows for health insurance companies to continue collecting premiums for longer periods of time as well as it generates inherent demand for the plans it offers.
Isn’t this sort of messed up?
And that’s about as far as we are going to take that particular topic of discussion today, ladies and gentlemen.
We still urge you to ponder this matter yourself, of course.
The main course this evening is Long Beach, California health insurance provider, Molina Healthcare, a healthcare company (in the industry it is specifically called a managed care company, just in case you were wondering) that specializes in individual care (as opposed to offering managed care services to employers or other major organizations) plans in the even further specialized sphere of Medicaid and Medicare, government-backed programs that Molina deals in that serve low income individuals and the older generations, respectively.
While the company’s services aim at seemingly helping as many folks as possible, especially those that might face challenges in receiving care and treatment to begin with, a catch involved with a company such as Molina is that it can and has been categorized as a narrow-network healthcare provider, meaning that given its relatively inexpensive premiums the healthcare and treatment options are correspondingly slim and thus perhaps not as helpful or desirable for its patients.
In other words, you get what you pay for.
At the end of the day, however, Molina Healthcare is a business (and a very prominent, national one, at that) and the objective, financially motivated investor might hold the view that this company is still providing a product and/or service and if there are buyers in the marketplace drifting towards Molina, so be it.
Molina is just embracing a niche for those who have been historically underserved.
In keeping all of this in mind, it would serve us best to begin discussing some of the core financials and other relevant figures behind Molina in considering whether or not it is a company worth pondering an investment in for the days, weeks, months and years to come.
Molina’s stock financials
First and foremost Molina Healthcare is an $18.3 billion company (according to its market capitalization in early September 2023) accompanied by a share price of $313.97, a price-to-earnings (P/E) ratio of 19.71 along with not an annually distributed dividend in sight.
We like what we are initially seeing with Molina as its shares (according to its price-to-earnings ratio standing a bit lower than that of the fair value benchmark of 20) are a tad undervalued at the moment and we aren’t all that surprised that this company doesn’t presently issue a consistent, annual dividend to its shareholders, which is more than likely due to the company’s management team wanting to stash away as much as it can in terms of reserves so as to be prepared when it does have to pay out claims to its patients.
Not paying an annual dividend also makes it easier for Molina to consistently acquire health plans and other potentially lucrative, accretive contracts, affording it the ability to continue growing its overall business and related prospects, which should ultimately benefit shareholders through an appreciation in share price.
With respect to the current condition of Molina’s balance sheet, the company’s executive team is tasked with taking care and responsibly handling around $12.3 billion in terms of total assets along with $9.3 billion in terms of total liabilities, which, to us, seems a tad steep on the liabilities side of things, but, in putting this into some more perspective, the nature of insurance generally calls for a greater amount of listed total liabilities given the payouts and financings a company such as Molina is likely engaged in nearly every minute of every day.
So long as the company’s total liabilities remain below the cumulative amount of its total assets, we don’t see much reason for concern at this point in time, but rather just some things to bear in mind when thinking about this company and its financial health.
Onto the company’s income statement, Molina’s total annual revenues since 2018 have most definitely been trending in the right direction, so much so that between 2018 and 2022 they have nearly doubled its revenues, which is far from a small accomplishment given the already large base Molina is operating on, as its total revenue in 2018 was reported as almost $18.9 billion and it has generally risen up year-over-year (YOY) to its latest reported figure of a hair under $32 billion (as reported in 2022), implying that it has been growing (which helps justify its slightly elevated amount of total liabilities, as previously referenced), perhaps through expanding its healthcare plans and packages and offerings thereof as well as eating up some market share across the United States.
As it relates to the company’s cash flow statement, Molina’s net income and total cash from operations have been positive and consistent for the most part, however, it can be gathered that its trailing twelve month (TTM) net profit margin isn’t likely to be all that high, which, as we have seen in previous stock analysis articles on major healthcare companies, is far from uncommon, perhaps due to the premiums that are paid out that undeniably cut into these companies profit margins.
Molina’s stock fundamentals
More specifically, according to the figures displayed on TD Ameritrade’s platform, Molina’s TTM net profit margin marks its territory at 2.81% to the industry’s respective average of 2.60%, which certainly confirms what we gathered from the company’s cash flow statement, as both the industry and this particular company’s average TTM net profit margins are markedly low, although competitive, with Molina showing an upper hand to its peers, again, on average.
When it comes to the company’s TTM returns on assets and investment(s), Molina’s are in certain cases significantly healthier than the industry’s average figures, for instance, as the company’s TTM return on investment trounces at 15.97% to the industry’s respective average of 3.50%, speaking for themselves, shouting from the rooftops that it does a much better job at extracting outsized returns from the investments it makes, and we think investors should certainly take some level in comfort in this metric, as it bodes quite well for this company’s track record of success.
Should you buy Molina Healthcare stock?
While we have our own opinions on some facets of the healthcare industry and sector as a whole, Molina itself is seemingly in a great position, targeting and holding a considerable amount of market share in a handful of segments within the space (i.e., Medicaid and Medicare services, primarily), continuously expanding its care and plan portfolios, putting up relatively strong TTM net profit margin and return on assets and investment figures with respect to the industry (on average), not to mention the fact that its balance sheet is in a solid position and its shares (NYSE: MOH) are, for all intents and purposes, trading at just about fair value relative to their actual, intrinsic worth.
Controversies and opinions aside, while teetering on the fence of a “buy” or “hold rating, we think at this juncture it would be most appropriate to employ this company’s stock (NYSE: MOH) with a “hold” rating, given that its shares are essentially baked in as it relates to intrinsic value and this is still, albeit growing, a larger, established company that isn’t likely to continue growing its revenues at the rate it has over the last handful of years, which has nevertheless been at an impressive rate.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.