Can Molina Healthcare sustain its market rally?

While a much larger industry peer United Health (NYSE: UNH) tends to get attention, large-cap managed-care provider Molina (NYSE: MOH) has shown better price power in recent months. – MarketBeat

With a market cap of $20.89 billion, Molina is big enough to be followed by the S&P 500, but it dwarfs UnitedHealth’s market cap of $482.59 billion.

Elevance Health (NYSE:ELV), Centene (NYSE: CNC), Cigna (NYSE: CI) and Humana (NYSE: HUM) are also larger than Molina. However, California-based Molina is the price-performance leader in that industry, with the following speeds:

  • 1 week: +1.96%
  • 1 month: +5.96%
  • 3 months: +20.66%
  • Year to date: +13.05%

You don’t see many stocks with such consistent gains right now, across moving time frames.

It’s easy to compare that performance to the broader S&P 500, using an ETF like the SPDR S&P 500 ETF (NYSEARCA: SPY) or the iShares S&P 500 ETF (NYSEARCA: IVV) as an authorized representative.

When evaluating a stock, it’s also a good idea to compare it to its wider industry. That can show you whether the stock is a top-performing outlier, or whether there is any strength in its sector or sub-sector.

In Molina’s case, you can compare it to the S&P large-cap healthcare sector using the Healthcare Select Sector SPDR ETF (NYSEARCA: XLV). That ETF has fared worse than Molina, down 9.14% so far.

As a whole, the managed care industry outperforms many others. Most major players have slightly different business models, with Molina specializing in health insurance through government-run programs, including Medicare and Medicaid.

As a possible precursor to other insurers, UnitedHealth surpassed analysts’ opinion when it reported earnings on Oct. 14.

Molina broke out of a handle cup in mid-March and soared to a high of $350.19 on April 21 before flipping. That timing is remarkable, as the S&P 500 made several failed rally attempts, and on April 21, one attempt fell well short of its previous high of 4818, which had been reached in early January.

Molina then formed a constructive double bottom pattern, reaching a low of $249.78 on June 17. That interrupted January’s previous structural low of $263.64, paving the way for another run-up. It may seem a bit counter-intuitive, but when a stock falls to a level where institutions see the benefit of buying stocks at a lower valuation, another rally can begin.

After hitting a buy point of over $315.91, Molina started building a flat base in late August. Shares rose to a record high of $362.75 on Oct. 14. The stock traded lower on Wednesday along with the broader market.
Can Molina Healthcare sustain its market rally?

With every stock that has made market-beating gains, the question is always: can the rally be sustained?

Some of the upward price action is dependent on the broader market, as well as the company’s own outlook. MarketBeat Earnings Data show that Molina has achieved double-digit sales growth over the past eight quarters. Bottom-line growth was more erratic, but Molina beat the analysts for four quarters in a row.

The company will report its third quarter results on Oct. 26, with analysts expecting earnings of $4.25 per share on revenue of $7.69 billion. Both would be year-over-year increases.

Molina certainly has some of the characteristics of a growth stock, but the P/E ratio of 24 isn’t outlandish, and anyway, growth investors are generally okay with paying for a stock whose future looks bright.

Wall Street expects Molina to earn $17.71 a share this year, up 31%. Next year, analysts see the company earning $20.08 a share, a gain of another 17%. Data from MarketBeat analysts show a consensus rating of “hold” with a price target of $345.20, slightly lower than where the stock traded Wednesday.