Financials
Financials in One Page
Molina is a $45B-revenue, capital-light Medicaid-and-Medicare managed care insurer whose earnings power just broke. Revenue grew 11.7% to $45.4B in FY2025 but the medical care ratio (MCR) jumped from 89.1% to 91.7%, operating margin collapsed from 4.2% to 1.7%, and diluted EPS fell 56% from $20.42 to $8.92. Operating cash flow turned negative $535M for the first time in seven years, dragging free cash flow to -$636M even as buybacks ran at over $1B. The balance sheet still has $8.3B of cash against $4.0B of debt — a net cash position — but management's 2026 guide of just $5.00 of adjusted EPS (down 55% again) tells you the reset is not over. At ~$173, the stock trades at 2.2x book and 4.7x EV/EBITDA — historically cheap, but only attractive if you believe Medicaid rate updates can pull the MCR back toward 88-89% and "new store embedded earnings" of $11+/share are real.
Revenue FY2025 ($M)
Operating Margin
Free Cash Flow ($M)
Net Debt (negative = net cash) ($M)
Medical Care Ratio FY25
Return on Equity
EV / EBITDA
Price / Book
Reader primer. For a Medicaid/Medicare HMO, the Medical Care Ratio (MCR) is the single most important line. It is medical costs paid out as a percentage of premium revenue. Every 1 point of MCR is about $430M of pretax profit on $43B of premiums. MOH's MCR moved from 89.1% (FY2024) to 91.7% (FY2025) and management's own guide for FY2026 is 92.6%. That single 350 basis-point move is the story behind every collapsed margin and cash-flow number on this page.
Key signal: FY2025 net income $472M but operating cash flow -$535M — the first negative OCF year since 2018. Earnings quality is broken until receivables and risk-adjustment true-ups unwind.
Revenue, Margins, and Earnings Power
Revenue compounded at 14% per year since 2015, with three step-changes: the 2014-15 ACA expansion, the 2020-21 Medicaid redetermination pause during COVID, and the 2024-25 ramp from new state contracts in Iowa, Nebraska, and Texas. Margins, however, have always been thin and cyclical — operating margin has averaged about 4% over the cycle and has now retraced to 1.7%, a level last seen in the 2016-17 retrenchment.
Long-run revenue and operating income
The chart says the obvious: revenue scaled 3.2x in a decade while operating income roughly doubled at peak. Operating leverage has been negative — every $10 of new revenue has produced roughly $0.40 of new operating profit, well below what management has implied. The 2017 negative result was a goodwill write-down plus restructuring; 2025 is different — it is a real underwriting miss, not a one-time charge.
Margin profile — the part that breaks the model
Gross margin in this business is essentially (1 - MCR) plus a small pharmacy/administrative-services contribution. Today's 13.1% gross margin equates to an 86.9% revenue-cost ratio at the consolidated level; subtracting G&A of 6.6% leaves operating margin near 1.7%. The bull case is mean reversion to the 17-19% gross margin / 5-6% operating margin band that prevailed 2018-2020.
Recent quarterly trajectory — when the model broke
Revenue kept rising every quarter through Q3 2025 even as operating income halved — premiums were locked in while medical costs were not. Q4 2025 brought a $162M operating loss and a $3.15 loss per share, of which management attributed approximately $2.00 to retroactive California Medicaid revenue clawbacks. Q1 2026 is a soft beat (EPS $0.27), but the underlying MCR is still elevated and management refused to raise guidance — guidance for the year is now just adjusted EPS of at least $5.00.
Earnings power judgment. The 2024 EPS of $20.42 was a peak, not a baseline. Treat $11-13 of adjusted EPS as the post-reset normal once retroactive items and the Medicare Advantage Part D exit (planned for 2027) are absorbed. The path back to $18-20 of EPS depends on Medicaid rate updates catching up to the 2024-25 utilization run-rate.
Cash Flow and Earnings Quality
Free cash flow is the cash a company generates after running the business and reinvesting in fixed assets — for an insurer it is dominated by working-capital swings between premium receipts and medical-claim payments, since capital expenditure is small. When net income is much larger than operating cash flow for an insurer, it generally means claim payments are catching up faster than premium revenue — exactly what is happening at MOH today.
Net income vs operating cash flow vs free cash flow
Cash conversion — earnings turned into cash, by year
The COVID years (2020-21) were a windfall — Medicaid redetermination was paused, members did not roll off, premium received exceeded claims paid, and FCF was 2.7-3.1x net income. By 2025, the same mechanism reversed: the redetermination unwind, retroactive revenue clawbacks in California, and slower risk-adjustment true-ups dragged FCF well below reported earnings.
Where the cash actually went in FY2025
The implied $1.25B working-capital drag is the largest one-year reversal in MOH's history. Receivables rose from $3.30B to $3.53B (+$234M), accounts payable fell from $1.33B to $1.09B (-$238M), and the rest is implied medical-claims-payable timing. Insurer working capital is normally a tail-wind because premiums are received before claims are paid — when that flips, it is a tell that the reserving cushion is being used to absorb the underwriting miss.
Earnings quality red flag. FY2025 free cash flow of -$636M is the worst absolute and worst-relative-to-net-income result of the past decade. Management is funding buybacks ($1.04B) and acquisitions ($245M) with new debt issuance ($1.94B) rather than internal cash generation. That cannot continue without compressing the cushion that supports the AAA-equivalent state-regulator capital ratios.
Balance Sheet and Financial Resilience
For an insurer, the balance sheet question is not "can it survive a downturn" — it is "can it absorb adverse underwriting development while maintaining regulatory capital." MOH still passes that test comfortably, but the cushion is thinner than it was a year ago.
Cash, debt, and net debt over time
Cash fell $730M in FY2025 while gross debt grew $830M — a $1.56B swing that has shrunk the net cash cushion from a peak of $6.7B (FY2023) to $4.3B today. Even at $4.3B, MOH is still net cash, which is rare for a managed care insurer of this size — UNH, ELV, HUM, and CVS all sit at net leverage above 0x.
Insurer-specific resilience — what matters more than leverage ratios
Cost-of-revenue divided by premium revenue is the medical care ratio (MCR). Below are MOH's MCRs as disclosed in the 4Q25 release and 2026 guide:
A healthy Medicaid MCR is 85-87%. Medicare Advantage usually runs 86-89%. Marketplace can run hot (88-90%) but should be priced to it. MOH's 2026 guide sits 350-500 basis points above those benchmarks across every segment. That is the resilience question — not solvency, but how many years of below-target underwriting will state regulators tolerate before requiring capital top-ups at the regulated subsidiaries.
Liquidity and working-capital position
Tangible book value fell from $2.56B to $1.87B in one year — a 27% reduction driven by buybacks and the $257M goodwill addition from acquisitions. At the current $8.85B market cap, the market is paying roughly 4.7x tangible book, which is rich for a low-ROE insurer year.
Resilience verdict. The company is liquid and solvent, but the cushion has narrowed. Total debt grew 27% in FY2025 and tangible book shrank 27%. If MCR does not bend back below 91% in 2026, leverage covenants and regulator capital top-ups become a live concern.
Returns, Reinvestment, and Capital Allocation
This is where management's actions need to be judged against what the numbers actually justified.
Returns on capital have collapsed
ROE has averaged 32% over 2018-2024, well above MOH's 8-9% cost of equity — clear evidence of a financial moat from regulated-Medicaid scale. The 11% ROE in 2025 is below cost of equity for the first time since 2017. Whether 2025 is a one-year air pocket or a structural reset is the most consequential question on this page.
Capital allocation — buybacks dominated by management even as profits fell
Two observations stand out. First, MOH pays no dividend — every dollar of capital return is buybacks, which makes per-share economics dependent on price discipline. Second, the FY2024-25 buyback cadence of $1.04-1.06B was funded partly with new debt, not just cash earnings. Buying back $1B at FY2024's average price of roughly $325 (peak buyback was earlier in the year above $300) looks expensive against today's $173 — that is value-destroying repurchase timing, by any reasonable measure.
Share count — the buyback payoff
Share count is down 23% since 2018, which has structurally amplified per-share earnings and is supportive of a higher fair P/E than the multiple alone would imply. But spending $2.1B over FY2024-25 to retire about 5.6M shares is roughly $375 per share retired, against today's price of $173 — the buyback program paid 2.2x the current price for the shares it bought. That is the textbook definition of a poorly timed return-of-capital program.
Capital allocation grade: D. Aggressive buybacks at $300+ funded with debt issuance, while underwriting was visibly deteriorating, is the single weakest decision in the financial record. Watch for whether 2026 capital returns are pulled back or accelerated at today's lower price — the answer signals how seriously the board takes the FY2025 miss.
Segment and Unit Economics
MOH does not publish formal GAAP operating segments — it reports premium revenue, MCR, and membership by line of business (Medicaid, Medicare, Marketplace). The line-of-business breakdown is sufficient to see where economics live.
Membership and premium revenue by line of business (FY2025 → FY2026 guide)
Medicaid is 91% of members and roughly the same share of premium — it is the franchise. Marketplace is intentionally shrinking. Medicare is being restructured around dual-eligibles with the planned 2027 exit of standalone Medicare Advantage Part D (about $1B of annual premium, costing $1.00/share in 2026 from underperformance). The net effect for 2026 is a deliberate $2.50/share earnings burden (split $1.50 Florida-contract implementation cost + $1.00 MAPD underperformance) that management says is the floor before "new store embedded earnings of $11+/share" can be unlocked.
The investor question. Do you believe management's "embedded earnings power of $11+/share"? If yes, today's $173 stock is roughly 16x normalised earnings. If you believe Medicaid pricing will continue to lag medical inflation, today's stock is 35x of $5 guided EPS — and that is before the next leg of MCR deterioration.
Valuation and Market Expectations
The market is pricing MOH for a partial — not full — earnings recovery.
Historical multiple — where the market has been willing to pay
The 2025 P/E of 19.5x looks expensive but is calculated on collapsed earnings; the EV/EBITDA of 4.7x and P/B of 2.2x are at decade lows. The market is saying: "we will not capitalise current earnings, but we are not yet willing to capitalise normalised earnings either."
Quick bear/base/bull scenarios
Against the current ~$173 price, the scenarios span a bear ~70% drawdown to bull ~21% upside — a wide range that reflects how uncertain the normalised earnings base is. Sell-side consensus price target of $182.73 sits roughly at the mid-base scenario with a "show me" posture (consensus rating: Hold, with 11 of 16 analysts holding).
Valuation judgment. P/B of 2.2x and EV/EBITDA of 4.7x are not screaming-cheap for an insurer earning 11% ROE — those multiples are appropriate, not bargain. The asymmetric setup requires confidence that the FY2025 MCR deterioration is cyclical (Medicaid rate-update lag) rather than structural (under-priced contracts that need to be repriced). The 1Q26 result was a small but real first data point in the cyclical camp.
Peer Financial Comparison
The comparable set is the five large US managed-care insurers MOH actually competes with for state contracts and customers.
The peer table tells you four things. First, MOH is one of two managed-Medicaid pure-plays in the group, alongside CNC — and CNC is in worse shape (operating loss, negative ROE, full-year goodwill impairment). Second, MOH's operating margin of 1.7% is below the diversified-payor peer median of ~3% but the gap closes if MCR mean-reverts. Third, the P/B of 2.18x is above ELV and HUM (1.75-1.76x) and above CNC (1.01x) — the premium is for the prospect of cyclical recovery, not for current returns. Fourth, MOH is the only name with both negative FCF and the smallest market cap in the group — the stock is the most operationally levered to a Medicaid-rate-recovery thesis.
What to Watch in the Financials
The financial statements confirm that Molina's underlying franchise is real — 32% average ROE over seven years, falling share count, and durable net cash. They contradict the 2024 narrative of an unbroken compounder — operating cash flow turned negative, ROE collapsed to 11%, and management chose to fund $1B of buybacks with debt issuance even as MCR was deteriorating. The first metric to watch is consolidated MCR: it is the only number that tells you whether the FY2025 underwriting miss is a one-year air pocket or a multi-year structural reset.
The first financial metric to watch is the Q2 2026 consolidated MCR print. A reading below 92.0% would support the cyclical-recovery framing; a reading at or above 92.6% would refute it and keep the under-pricing question open.