BMO Sees 30% Upside Potential For Molina Healthcare

Molina Healthcare, Inc. MOH shares have advanced about 30 percent year-to-date. 

The stock is poised to record an incremental gain of the same magnitude, according to BMO Capital Markets.

The Analyst

Analyst Matt Borsch reiterated an Outperform rating on Molina with a $200 price target, suggesting a total return of 31 percent.

The analyst recently upgraded the stock to Outperform following Molina's annual investor day.

The Thesis

BMO remains bullish on Molina, Borsch said following a meeting with the company's CEO and CFO at its headquarters.

The meeting built on key themes from Molina's recent investor day, and the incremental data points from the meeting reinforced the analyst's confidence in margin sustainability and a strong multiyear growth outlook, he said in a Tuesday note. (See Borsch's track record here.) 

The analyst's key takeaways were: 

• Molina's CEO has strong visibility on 2020.
• The company's Medicare managed care margins are closer to peers than it appears, as its lower mix of new market revenue drags profits.
• Molina expects the Texas federal court ruling against ACA to be overturned, although it acknowledged that the issue will remain an uncertainty for some investors until it occurs in 2020-21.
• The company believes participation in dual SNP/MMP will increasingly be tied to an existing MMC presence.
• The company sees multiple ways it is likely to benefit from a Centene Corp CNC-WellCare Health Plans, Inc. WCG merger.

Price Action

Molina shares were trading down by 2.62 percent at $148.16 at the time of publication Wednesday. 

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