Should You Buy or Hold Molina Healthcare Stock Before Q3 Earnings?

Core Viewpoint - Molina Healthcare, Inc. is expected to report third-quarter 2024 results on October 23, 2024, with earnings estimated at $5.96 per share and revenues of $9.96 billion, reflecting year-over-year growth in both metrics [1][2]. Earnings Estimates - The earnings estimate for the third quarter has seen downward revisions over the past 60 days, but still indicates an 18% year-over-year increase, while revenue is projected to grow by 16.5% year-over-year [2]. - Molina Healthcare has a history of exceeding earnings estimates, having beaten the consensus in the last four quarters with an average surprise of 3.1% [3]. Earnings Prediction Model - The current model does not predict a definitive earnings beat for Molina Healthcare, as it has an Earnings ESP of -0.49% and a Zacks Rank of 3 (Hold) [4]. Factors Influencing Q3 Results - Growth in the Medicaid and Medicare customer base is expected to drive premium growth, with a consensus estimate indicating a 16.4% year-over-year increase in premiums [5]. - Medicaid premiums are projected to exceed $7.4 billion, reflecting over 10% growth year-over-year, while Medicare premiums are expected to reach $1.48 billion, up 43.1% year-over-year [5][6]. - Membership growth in Medicaid is anticipated to increase by 5.5% year-over-year, while Medicare membership is projected to grow by 47.2% [6]. - A favorable interest rate environment is likely to enhance investment income, with a consensus estimate indicating a 4.5% rise year-over-year [6]. Cost and Expense Outlook - The consensus for the medical care ratio (MCR) in the Marketplace is set at 81.98%, up from 78.90% a year ago, indicating higher medical expenses [7]. - Total operating expenses are expected to increase by more than 15% year-over-year due to rising medical care costs and general administrative expenses [7]. Stock Performance and Valuation - Molina Healthcare's stock has declined by 19.9% year-to-date, underperforming the industry growth of 3% and significantly lagging behind the S&P 500's 22.5% increase [8]. - The company's current valuation is at 11.17X forward 12-month earnings, below its five-year median of 15.16X and the industry average of 16.05X [10]. Growth Prospects - Molina Healthcare is expected to see consistent revenue growth due to contract wins and increasing memberships in its Marketplace unit [12]. - The company has a return on equity of 28.1%, surpassing the industry average of 23.9%, indicating effective utilization of shareholder funds [12]. - The long-term debt to capital ratio stands at 33%, lower than the industry average of 38.3%, providing financial flexibility [12].