Healthcare insurance company Molina Healthcare (NYSE:MOH) announced better-than-expected revenue in Q4 CY2024, with sales up 16% year on year to $10.5 billion. The company’s full-year revenue guidance of $44 billion at the midpoint came in 1.4% above analysts’ estimates. Its GAAP profit of $4.44 per share was 19% below analysts’ consensus estimates.
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Molina Healthcare (MOH) Q4 CY2024 Highlights:
- Revenue: $10.5 billion vs analyst estimates of $10.3 billion (16% year-on-year growth, 1.9% beat)
- EPS (GAAP): $4.44 vs analyst expectations of $5.48 (19% miss)
- Adjusted EBITDA: $446 million vs analyst estimates of $517.6 million (4.2% margin, 13.8% miss)
- Management’s revenue guidance for the upcoming financial year 2025 is $44 billion at the midpoint, beating analyst estimates by 1.4% and implying 8.2% growth (vs 19.4% in FY2024)
- EPS (GAAP) guidance for the upcoming financial year 2025 is $22.50 at the midpoint, missing analyst estimates by 8.6%
- Operating Margin: 3.6%, in line with the same quarter last year
- Free Cash Flow was -$235 million compared to -$685 million in the same quarter last year
- Customers: 5.5 million, down from 5.6 million in the previous quarter
- Market Capitalization: $18.04 billion
“I am very pleased our 2024 revenue growth exceeded our long-term targets and we produced consolidated pre-tax margins within our long-term target range,” said Joseph Zubretsky, President and Chief Executive Officer.
Company Overview
Founded in 1980 as a clinic for underserved California residents, Molina Healthcare (NYSE:MOH) provides health insurance to individuals and families who are eligible for government-sponsored programs such as Medicare (elderly) and Medicaid (low-income).
Health Insurance Providers
Upfront premiums collected by health insurers lead to reliable revenue, but profitability ultimately depends on accurate risk assessments and the ability to control medical costs. Health insurers are also highly sensitive to regulatory changes and economic conditions such as unemployment. Going forward, the industry faces tailwinds from an aging population, increasing demand for personalized healthcare services, and advancements in data analytics to improve cost management. However, continued regulatory scrutiny on pricing practices, the potential for government-led reforms such as expanded public healthcare options, and inflation in medical costs could add volatility to margins. One big debate among investors is the long-term impact of AI and whether it will help underwriting, fraud detection, and claims processing or whether it may wade into ethical grey areas like reinforcing biases and widening disparities in medical care.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Molina Healthcare grew its sales at an impressive 19.3% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.
Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Molina Healthcare’s annualized revenue growth of 12.8% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong. 
Molina Healthcare also reports its number of customers, which reached 5.5 million in the latest quarter. Over the last two years, Molina Healthcare’s customer base averaged 4.3% year-on-year growth. Because this number is lower than its revenue growth, we can see the average customer spent more money each year on the company’s products and services. 
This quarter, Molina Healthcare reported year-on-year revenue growth of 16%, and its $10.5 billion of revenue exceeded Wall Street’s estimates by 1.9%.
Looking ahead, sell-side analysts expect revenue to grow 6.5% over the next 12 months, a deceleration versus the last two years. We still think its growth trajectory is satisfactory given its scale and indicates the market is baking in success for its products and services.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Molina Healthcare was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.2% was weak for a healthcare business.
Analyzing the trend in its profitability, Molina Healthcare’s operating margin decreased by 1.4 percentage points over the last five years. A silver lining is that on a two-year basis, its margin has stabilized. We like Molina Healthcare and hope it can right the ship.
In Q4, Molina Healthcare generated an operating profit margin of 3.6%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Molina Healthcare’s EPS grew at a spectacular 12.2% compounded annual growth rate over the last five years. However, this performance was lower than its 19.3% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.
We can take a deeper look into Molina Healthcare’s earnings to better understand the drivers of its performance. As we mentioned earlier, Molina Healthcare’s operating margin was flat this quarter but declined by 1.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
In Q4, Molina Healthcare reported EPS at $4.44, up from $3.71 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Molina Healthcare’s full-year EPS of $20.42 to grow 19.4%.
Key Takeaways from Molina Healthcare’s Q4 Results
It was good to see Molina Healthcare provide full-year revenue guidance that slightly topped analysts’ expectations. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 9.2% to $288 immediately following the results.
The latest quarter from Molina Healthcare’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
