Goldman Sachs Downgrade Molina Healthcare, Sees 6% Downside

Molina Healthcare, Inc. MOH shares have plummeted 25 percent since the company reported disappointing 1Q results on April 28. Goldman Sachs’ Matthew Borsch downgraded the rating for the company from Neutral to Sell, while reducing the price target from $75 to $45. The analyst said that another earnings miss was likely to result in further downside.

Shares To Continue Decline On Another Earnings Miss

Analyst Matthew Borsch mentioned that there was a high possibility of Molina Healthcare reporting lower-than-expected earnings for 2Q as well. The EPS estimate for 2016 has been reduced from $3.86 to $1.50, below the company’s revised guidance range of $2.50-$2.95.

“Given the fairly rapid emergence of earnings pressure and its multiple interrelated drivers, we believe MOH may not have fully recognized the downside to FY2016 EPS,” Borsch wrote. He added that concerns had been fueled even further by “MOH’s characterization of overburdened staff and systems amidst higher-than-expected utilization.”

Another earnings miss would exert further pressure on Molina Healthcare’s shares. Borsch also sees downside risk to Molina Healthcare’s assumption that its ACA exchange book would remain profitable following a threefold growth in enrollment this year.

The EPS estimates for 2017 and 2018 have been reduced from $4.80 to $3.00 and from $5.80 to $4.50, respectively. The company could recover in 2017-2018, the analyst.