Molina Healthcare's Issues Aren't Permanent, JPMorgan Says Amid Upgrade

Molina Healthcare, Inc. MOH and CEO Joe Zubretsky made quite an impression at the recent JPMorgan Healthcare conference, and Wall Street took notice.

The Analyst

JPMorgan analyst Gary Taylor upgraded Molina stock from Neutral to Overweight and raised his price target from $65 to $103.

The Thesis

Zubretsky’s plan of getting back to the basics by implementing “managed care 101” contracting may be exactly what the company needs.

“Zubretsky did not provide financial guidance, but did provide a comprehensive overview of operational opportunities while suggesting that he ‘would not be happy’ if material margin recovery towards industry peers took as long as three years,” Taylor wrote in a Tuesday note.

Taylor said Molina should be able to expand pretax margins to levels approaching those of competitors Centene Corp CNC and WellCare Health Plans, Inc. WCG.

JPMorgan has raised its earnings estimates for 2017, 2018 and 2019 from $0.00, $2.00 and $3.00, respectively, to 88 cents, $4.58 and $6.03. The firm anticipates after tax margins of 1.3 percent in 2018 and 2.0 percent in 2019 after factoring in tailwinds from tax reform. JPMorgan expects after-tax margins of 2.0 percent in 2018 and 2.2 percent in 2019 from Centene and WellCare.

JPMorgan’s new price target represents a risk-adjusted 17.0 times earnings multiple on its 2019 EPS estimate.