Molina Healthcare, Inc. (MOH) climbed Tuesday 8.60% to $127.88 after JPMorgan analyst Gary Taylor upgraded the Long Beach, Calif.-based company's stock to overweight from neutral, with a price target of $150.
Taylor said in a note to investors he was upgrading the stock for the second year in a row following a "bullish presentation" by CEO Joe Zubretsky.
"Last year, Zubretsky laid out the earnings turnaround case," Taylor said. "This year, he laid out the case for sustainability of earnings power (and) further upside."
Taylor said his "biggest fundamental concern" for Molina Healthcare was the risk of the discrete health insurance exchange, or HIX, margin reset in 2020 due to the Centers for Medicare & Medicaid Services' minimum medical loss ratio requirements.
Molina Healthcare "made the definitive statement that they expect to be above the MLR floor for 2018 and that its rolling 3-year compliance requirement does not rely on the elevated levels from prior years."
"Therefore, the plausible risk to (Molina's) stated 13% pretax HIX margins remains competitive pressures over the longer term, vs. a discrete, near-term regulatory requirement," Taylor wrote. "This change has an enormous impact on our 2020 EPS estimate."
Last week, Molina Healthcare said it had extended its agreement with CVS Caremark for pharmacy benefit management (PBM) services through 2021. Under the agreement, which became effective Jan. 1, CVS Caremark will continue to administer pharmacy benefits for the roughly 4 million members Molina serves through its Medicaid, Medicare, and Marketplace health plans.