Goldman Gives Molina Healthcare A Checkup, Upgrades To Neutral

Goldman Sachs’ Matthew Borsch believes the outlook for Molina Healthcare, Inc. MOH could potentially worsen following the unexpected earnings shortfall in Q1.

However, Borsch upgraded the rating on the company from Sell to Neutral, while raising the price target from $51 to $58.

Q2 Better Than Q1

The analyst mentioned that the stock was up 21 percent since early May as compared to a 4 percent rise in the S&P 500.

“While the risk of another big earnings shortfall remains a factor, we see that risk as lower than we did before,” Borsch stated.

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Although Molina Healthcare’s Q2 results were materially impacted by one-time items, they were definitely better than Q1 and were “good enough” to help refocus investor attention on the company’s robust growth story and potential for margin recovery in 2017–2018.

Estimates Revised

While maintaining the sales estimate, the analyst raised the EPS estimates for 2016 and 2017 from $2.10 to $2.50 and from $3.25 to $3.75, respectively.

“We maintain 2018 EPS at $4.50, since our view of margin recovery by then remains unchanged,” Borsche explained.

Balanced Risk/Reward

According to the Goldman Sachs report, “MOH should benefit from scarcity value and from potential M&A interest given it is the smallest of the public companies and also has the best business mix in the sector from the standpoint of near and longer-term growth.”

At time of writing, Molina was up 3.07 percent on the day at $57.45 in the first hour of regular trading Monday.

Full ratings data available on Benzinga Pro.