MOH stock to join S&P 500, emphasizing valuation and financials (NYSE:MOH)

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Medicaid-focused health insurer, Molina Healthcare (NYSE:MOH)set to debut in the S&P 500 before markets open in March 02, it was announced last Friday. The Long Beach, Calif.-based company will replace IHS Markit Ltd. (NYSE:INFO)which is on track to close its takeover deal with S&P Global (NYSE:SPGI) on Monday.

As this 12-month stock performance chart shows, Molina (MOH) traded roughly in line with its larger peers in the Medicaid space, namely Centene. (NYSE: CNC) and anthem (NYSE: ANTM)which have already made their way into the index.

However, inclusion in the S&P 500 could push up Molina’s (MOH) valuation, as shares of companies joining the index typically rise as their stocks are added to index funds following the benchmark.

Despite its strong financials, Molina’s (MOH) premium valuation will also come into focus, as actively managed funds compared to the S&P 500 weigh the newcomer’s stock purchase.

While Molina (MOH) had the best revenue and earnings growth for the recently concluded quarter to post a higher revenue pace compared to Centene (CNC) and Anthem (ANTM), its margins were lower. to those of his peers.

Molina (MOH) recorded 88.3% Medical Care Ratio (MCR) for 2021, compared to 86.5% the previous year. The metric showing medical expenses as a percentage of premium revenue was 87.5% and 87.8% for the year at Anthem (ANTM) and Centene (CNC), respectively.

While management blamed COVID-19 for rising costs, financial data from Molina (MOH) also indicates that the MCR of its relatively small market business jumped to 86.9%, from ~78.7% l ‘last year. However, membership in the segment more than doubled to 728,000, thanks to the special enrollment period, which was introduced to deal with the loss of employment-based coverage during COVID-19.

“We never intended to have 728,000 members; it was a feature of the special sign-up period, which not only increased the membership beyond what everyone expected, but added an important element of adverse selection,” said general manager Joe Zubretsky during the earnings call.

However, to achieve the margins targeted for 2022, the company plans to optimize its product mix. In the new year, “we will be pricing entirely on margin, not volume,” added CFO Mark Keim.

As part of the strategy, management is looking to reduce market memberships to ~250,000 by the end of 2022 after starting the year with ~320,000 members. Low-income bronze plans are expected to be just 15% in 2022, down from 41% last year.

Amid the promising outlook, Molina (MOH) continues to trade at a premium to its peers, which could give pause to investors looking to capitalize on a potential rally ahead of its S&P 500 debut. , COVID-19 vaccine maker Moderna (NASDAQ:ARNM) jumped more than 20% since the day of the announcement thanks to its addition to the index in mid-July.

Conviction on Molina (MOH) has gradually faded in recent months among analysts. Although the company maintained its buy rating, the rating slipped to 3.69 from 3.83 a year ago, as this chart shows.

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