Healthcare insurance company Molina Healthcare (NYSE: MOH) announced better-than-expected revenue in Q3 CY2025, with sales up 11% year on year to $11.48 billion. The company expects the full year’s revenue to be around $44.5 billion, close to analysts’ estimates. Its non-GAAP profit of $1.84 per share was 52.7% below analysts’ consensus estimates.

Is now the time to buy MOH? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Molina Healthcare's third quarter was marked by strong revenue growth but a significant shortfall in profitability, leading to a pronounced negative market reaction. Management attributed the underperformance primarily to elevated medical cost trends, particularly within its Marketplace segment, which experienced higher-than-expected utilization across most cost categories. CEO Joseph Zubretsky acknowledged the challenging environment, pointing specifically to persistent cost pressures in behavioral health, pharmacy, and long-term services and supports. He noted, “Our consolidated medical cost ratio reflects the continuation of a very challenging medical cost environment in the third quarter.”

Looking ahead, management’s guidance emphasizes a cautious approach as they navigate ongoing cost pressures and uncertainty in the risk pool, especially within the Marketplace business. Molina is repricing its Marketplace offerings with sizable rate increases and reducing its footprint to minimize risk exposure, while also focusing on growth opportunities from new Medicaid contract wins in Georgia and Texas. CFO Mark Keim highlighted the company’s strategy to restore margins, stating, “Our 2026 rate increases averaged 30%, and we have exited difficult geographies.” Management is positioning 2026 as a reset year that could approximate this year’s reduced earnings baseline, pending rate adequacy and stabilization in medical cost trends.

Key Insights from Management’s Remarks

Management cited elevated utilization, risk pool instability in Marketplace, and limited risk corridor protection as primary factors weighing on margins and profitability this quarter.

• Marketplace utilization surge: Management noted that the Marketplace segment experienced much higher utilization relative to risk adjustment revenue, particularly among special enrollment members who tend to incur higher costs early in their coverage. The risk adjustment mechanism, which is designed to offset the cost of higher-risk members, was less effective this year due to broad-based increases in medical costs across the industry, resulting in a negative pretax margin.
• Medicaid margin resilience: Despite higher-than-expected medical cost trends, Molina’s Medicaid business maintained margins that management described as “best-in-class in this environment.” Higher costs in behavioral health, pharmacy, and long-term services were only partially offset by positive rate updates, and risk corridor protections have become less impactful as trends persist.
• Medicare cost headwinds: The Medicare segment also faced increased utilization, especially in long-term services and high-cost drugs, which drove its medical cost ratio above expectations. Management explained that these pressures were particularly pronounced in high-acuity dual eligible populations, where both skilled nursing and pharmacy expenses rose significantly.
• Operating discipline in G&A: The company reported a strong general and administrative (G&A) expense ratio, reflecting ongoing cost discipline, even as operating margins declined. Management highlighted that Medicaid’s G&A ratio, just above 5%, remains a key point of competitive differentiation.
• Portfolio and M&A focus: Molina continues to pursue organic and inorganic growth, with an active pipeline of acquisition opportunities among struggling local health plans. Management emphasized disciplined capital allocation, noting that current valuations for potential targets are attractive due to industry-wide margin compression.

Drivers of Future Performance

Molina expects ongoing cost pressures and strategic portfolio adjustments to shape near-term performance, with Medicaid rate trends and Marketplace repricing as central themes.

• Medicaid rate advocacy: Management believes that state partners are increasingly receptive to higher rates, which could help offset elevated medical cost trends. Early indications suggest 2026 rates may be modestly ahead of trend, but the pace and magnitude of rate adjustments remain uncertain and are a key swing factor for margins.
• Marketplace exposure reduction: Molina is taking a conservative stance in the volatile Marketplace business, reducing its geographic footprint by 20% and implementing rate increases averaging 30%. Management anticipates a drop in membership and revenue in this segment, but expects these actions to restore profitability or at least achieve breakeven results.
• Growth from new contracts: The company expects incremental revenue from new Medicaid contract wins in Georgia and Texas, as well as growth in Medicare dual eligible populations through recent RFP successes. Management also highlighted an active pipeline of both organic and M&A-driven opportunities, which could support long-term revenue expansion if executed successfully.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be monitoring (1) whether state Medicaid rate increases are sufficient to keep up with or exceed medical cost trends, (2) Molina’s ability to execute on Marketplace repricing and manage its reduced footprint profitably, and (3) the integration and margin performance of new contract wins in Georgia, Texas, and the Medicare dual eligible segment. Progress on the acquisition pipeline and stabilization of utilization trends across all segments will also be important indicators of future performance.

Molina Healthcare currently trades at $164.38, down from $194.63 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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