We’ve already discussed this year’s total carnage in the US health insurance industry and as earnings season begins, its latest episode is upon us. Molina Healthcare lost another 17.5% yesterday after the company significantly reduced its EPS guidance amid marketplace contraction and Medicaid margin pressures. At $161 per share, the stock is down 62% from its March, 2024, record high of $424.
The bulls camp would argue that Molina is a bargain, since people will continue to need health insurance and the company’s financials will recover once things get back to normal. The bears would counter that Trump’s One Big Beautiful Bill has permanently damaged the business model of Medicaid-focused insurers. Given that we already hold two other health insurance positions in our portfolio, we generally side with the bulls here. In Molina’s case, the Elliott Wave chart below gives another reason for optimism.
MOH’s weekly chart reveals that the bull market between 2009 and 2024 is a clear five-wave impulse pattern. We’ve labeled it I-II-III-IV-V, where the five sub-waves of wave III are also visible. In addition, the impulsive structure of wave (3) of III is marked 1-2-3-4-5. According to the theory, a three-wave correction follows every impulse. With that in mind, the current crash is not that big of a surprise.
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It looks like a simple A-B-C zigzag correction with a leading diagonal in wave A. Wave C is already touching the 61.8% Fibonacci support level, where the corrective phase of the cycle often ends. If this count is correct, a bullish reversal can soon be expected. Given that Molina trades at less than 12 times crisis-hit EPS, the company’s low valuation is another reason to stay long-term positive. Revenue is projected to keep growing and once medical costs decline back to their usual ~85% range, Molina’s earnings can quickly double. We wouldn’t be surprised to see the stock rise to new all-time highs in a few years’ time.
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