Molina Healthcare: FY2026 EPS Collapses 64% — Committee Escalates to AVOID
Management guided FY2026 EPS to ≥$5.00 — down from $24.50 peak in FY2024 and 63% below consensus. Q4 delivered the company's first quarterly loss (-$3.15 GAAP EPS). Stock fell 35%. California's retroactive premium clawback introduces a new structural risk dimension. Our committee moves posture from HIGHER_SCRUTINY to AVOID.
This is an update to our full MOH analysis →
Down from $24.50 peak (FY2024)
First quarterly loss ever
$180 to ~$118 post-earnings
From $320 high
The Numbers
The headline numbers tell a story of accelerating deterioration, not a normal earnings miss. This is a company whose EPS trajectory has gone $24.50 → $11.03 → $5.00 in two years — while revenue continues to grow.
Q4 2025: First Quarterly Loss
GAAP EPS of -$3.15 versus consensus of +$0.34 — a miss of $3.49/share. This is Molina's first quarterly net loss as a public company. The miss wasn't driven by a single item: it was the accumulation of California retroactive adjustments (-$2.00/share), MAPD exit costs (-$1.00/share), and Florida implementation expenses (-$1.50/share) layered on top of already compressed Medicaid margins.
FY2026 Guidance: The Real Shock
Management guided FY2026 EPS to ≥$5.00. Consensus expected $13.71. The magnitude of this miss — 63% below consensus — is extraordinary for a managed care company. For context:
- • FY2024 peak EPS: $24.50
- • FY2025 guided EPS: $14.00 (actual: $11.03)
- • FY2026 guided EPS: ≥$5.00
- • Two-year EPS decline: -80% (while revenue grew)
Core Medicaid Margins: Still Compressed
Core Medicaid medical care ratio sits at approximately 2.5% pretax margin, versus a 4.5% target. This isn't new — rates have been inadequate for 18+ months since the Medicaid redetermination cycle began. What's new is that management is no longer projecting a near-term return to target margins.
The California Clawback: A New Risk Dimension
California changed its premium calculation methodology retroactively, clawing back premiums that had already been paid to Molina for prior periods. The impact: -$2.00/share, or roughly 40% of FY2026's entire guided EPS from a single state action.
This is structurally different from prospective rate inadequacy. Prospective rates can be modeled and negotiated. Retroactive clawbacks mean revenue you've already recognized and spent against can be taken back.
Management characterized this as a "one-time" adjustment. But consider the precedent:
Why This Matters Beyond California
- • No structural barrier to replication. Other states could adopt similar retroactive methodology changes. Molina operates in 20 states — each with independent rate-setting authority.
- • Earnings recognition becomes unreliable. If states can retroactively alter premium calculations, reported quarterly earnings carry an implicit "subject to revision" asterisk.
- • Modeling becomes materially harder. Prospective rate inadequacy is forecastable. Retroactive clawbacks are, by definition, unknowable until announced.
FY2025 guided EPS was $14.00. Actual came in at $11.03 — a 21% miss. Now FY2026 is guided at ≥$5.00. The "≥" floor language offers no ceiling. When guidance already missed by 21% last year, the confidence interval around this number is necessarily wide.
Every Signal Worsened
In our initial analysis, we flagged multiple risk signals. Q4 2025 results moved every one of them in the negative direction. This is the first time in our coverage history that a single earnings report has worsened all tracked signals simultaneously.
Revenue growing while EPS collapses ($24.50 to $5.00) proves regulatory rate-setting — not volume or market position — drives profitability.
California retroactive clawback (-$2.00/share from single state) demonstrates concentration risk has moved from theoretical to realized.
FY2025 guidance missed by 21%. MAPD exit shows discipline but came too late. Florida win is strategic but adds near-term costs (-$1.50/share).
Retroactive clawbacks introduce a new category of regulatory risk. Combined with 18+ months of inadequate rates, regulatory exposure now drives the entire thesis.
CEO sold $28M at $320 (stock now $118). No insider buying at current levels despite 63% decline. RSU grants tied to 2027 EPS targets that appear unreachable.
The Revenue Durability Debate: Resolved
In our initial analysis, the Gravy Gauge (Revenue Durability) lens classified Molina as CONDITIONAL while the Regulatory Reader lens argued for FRAGILE. The debate centered on whether government-contracted revenue is inherently durable (captive populations, multi-year contracts) or inherently fragile (regulatory rate-setting controls margins).
Q4 2025 resolved this debate. Both lenses now classify revenue durability as FRAGILE. The evidence is unambiguous: revenue is growing while EPS collapses 80% over two years. Volume and membership don't matter if regulators control the spread.
The Core Insight
Traditional revenue durability analysis looks at customer retention, contract terms, and switching costs. By those metrics, Molina appears strong: captive Medicaid populations, multi-year state contracts, growing membership (5.3M to 5.6-5.8M guided).
But Medicaid managed care has a structural feature that standard frameworks miss: the payer (state) and the customer (member) are different entities. The state sets the price. The member has no choice. Revenue durability in this model is a function of political and budgetary dynamics — not market economics. Q4 2025 proved this distinction matters.
What Actually Went Right
Not every signal was negative. Several operational metrics improved, and management made one strategically sound (if costly) decision. These warrant acknowledgment even in a deteriorating overall picture.
Marketplace MCR Improved 500bps
Medical care ratio improved from 95.6% to 90.6% in the Marketplace segment. This is a meaningful operational improvement that demonstrates the company can execute on cost management when pricing is market-based rather than state-dictated.
Florida SMMC/CHIP Win
Molina won the largest contract in its history — Florida's Statewide Medicaid Managed Care and CHIP program, effective January 2027. This diversifies state concentration and adds significant membership. The near-term cost (-$1.50/share implementation) is the price of long-term positioning.
MAPD Exit Shows Discipline
The decision to exit Medicare Advantage Prescription Drug plans by 2027 costs -$1.00/share near-term but removes a segment with deteriorating economics. This is the kind of strategic pruning that signals management rationality — even if it came later than optimal.
RADV Methodology Vacated
The Risk Adjustment Data Validation extrapolation methodology was vacated by courts, reducing audit tail risk for Molina and the broader managed care industry. This removes one uncertainty overhang, though it does not address the core rate-setting problem.
The Insider Question
Insider transaction patterns during a 63% stock decline provide a revealing data point about management conviction.
CEO Sale at the Top
The CEO sold $28M in shares at approximately $320 in April 2025. The stock now trades at roughly $118 — a 63% decline from the sale price. While executive sales are often pre-planned (10b5-1), the magnitude and timing are notable data points.
No Buying at Current Levels
Despite the stock being down 63% from peak, no insider has made open-market purchases at current levels. The COO purchased $1.56M at $156 in August 2025 but has not added to the position as shares declined further to $118. When management believes a stock is temporarily undervalued, they typically buy. The absence of buying is itself a signal.
Performance RSUs: Misaligned Incentives?
The CEO received 146,000+ performance RSUs tied to 2027 EPS targets. With EPS at $5.00 and declining, these targets appear increasingly unreachable. When performance compensation is effectively underwater, it reduces the alignment mechanism that connects management incentives to shareholder outcomes.
What to Watch
The "trough year" thesis requires states to restore adequate Medicaid rates. They haven't in 18+ months. California, Texas, and Ohio rate actions in 2026 will determine whether margins can recover.
Monitor whether other states adopt California's retroactive premium methodology change. Any replication would validate this as a systemic risk rather than an isolated incident.
The largest contract in Molina's history. Implementation costs are front-loaded (-$1.50/share in FY2026). Watch for execution risk and whether initial rates are adequate.
Open-market insider purchases at current levels would be the strongest possible signal that management believes in the trough thesis. Continued absence of buying speaks for itself.
Bottom Line
AVOID
Our committee has moved Molina Healthcare's assessment from HIGHER_SCRUTINY to AVOID — our most severe classification. This isn't just bad earnings. It's a structural revelation.
The structural problem: Revenue growing while EPS collapses 80% in two years proves that regulatory rate-setting — not operational execution or market position — controls profitability. This is not a temporary dislocation. It is the inherent risk of the business model being expressed.
The new risk dimension: California's retroactive premium clawback introduces a category of risk that cannot be modeled prospectively. Management's characterization as "one-time" is unsubstantiated — no structural barrier prevents other states from doing the same.
The recovery thesis requires faith: The "trough year" narrative requires states to restore adequate Medicaid rates. They have not done so in 18+ months. There is no announced timeline for rate restoration. The thesis is plausible but unanchored by evidence.
What Worsened
- • Revenue durability: CONDITIONAL → FRAGILE
- • Customer concentration: HIGH → CRITICAL
- • Regulatory exposure: ELEVATED → EXISTENTIAL
- • Governance alignment: MIXED → CONCERNING
- • Management mitigation: MATERIAL → MIXED
What Improved
- • Marketplace MCR (95.6% → 90.6%)
- • Florida SMMC/CHIP win (Jan 2027)
- • MAPD exit discipline
- • RADV audit tail risk reduced
Our Update Process
For earnings updates, we run targeted analysis on each affected lens. When new evidence changes a signal classification, we run full Bullet Hole validation — challenging the proposed change before accepting it. In this case, all five signal changes survived adversarial review. The posture change from HIGHER_SCRUTINY to AVOID was unanimous across our multi-model committee.