Interactive Buyside Community Issues BUY on MOH with $45.00 Target

The following is an Interactive Buyside research thesis summary, published by our independent buyside analyst community. To access the below full research report for free, click here and unlock the Molina Healthcare report.

Thesis Overview:

As one of the leading Medicaid-focused HMOs, MOH enjoys a strong foothold in one of the healthcare sector's fastest-growing markets.  MOH should directly benefit from healthcare reform, as states like California, Michigan, and Washington expand their Medicaid rolls.  In addition, there is a robust pipeline of contract opportunities transitioning state Medicaid programs from traditional government fee-for-service mechanisms to managed care.  In the near term, MOH should see upside to earnings versus current expectations driven by easing medical cost trends and conservative 2013 guidance.  Over the medium and longer-term, the growth story is compelling, as the company has indicated a 2015 goal of doubling its revenue base while simultaneously improving margins.  Based on industry trends, MOH could grow its topline 20% or more over the next 5 years or more.  In addition, as margins are still recovering from higher medical costs experienced in 2012, further normalization of cost trends could lead to significant earnings growth. Given these opportunities, the company is undervalued, trading at just under 15x consensus 2014 estimates, which could be as much as 20% too low.  Next week, the company is hosting an investor day, which should present a favorable update on the company's LT growth prospects.