Molina plunges after issuing 2026 profit forecast much below expectations

By Puyaan Singh and Gnaneshwar Rajan

Feb 6 (Reuters) - Molina Healthcare MOH.N shares plunged more than 28% on Friday after the U.S. health insurer forecast 2026 profit at less than half of Wall Street expectations as medical costs rose across its government-backed health plans.

It also said it would exit Medicare Advantage prescription drug plans in 2027 due to underperformance of the business.

Like peers, the company has been grappling with high costs, which caused it to lower its forecast several times last year.

"We believe that the imbalance between rates and trend marks 2026 as a trough year for Medicaid industry margins," said Molina CEO Joseph Zubretsky.

"We cannot predict how rate versus trend is going to improve over the next three years," he said during post-earnings call.

Molina is on track to lose $2.6 billion in market valuation, if the stock's losses hold.

FORECAST DRAGS PEERS

The dismal forecast also weighed on peer Centene CNC.N , which sees 2026 profit above estimates, although analysts cautioned Molina's issues may be more company-specific.

"In an already difficult operating environment for government managed care organizations, Molina is a smaller-scale player which has grown quickly over recent years and therefore has the potential for more significant revisions and misses," Bernstein analyst Lance Wilkes said.

Molina primarily sells Medicaid plans to low-income Americans and also offers coverage under the Affordable Care Act, commonly known as Obamacare.

These government-subsidized plans, which are based on income, include a risk-adjustment pool that reimburses insurers covering a disproportionate share of sicker members.

Molina expects adjusted profit per share of at least $5.00 in 2026, far below analysts’ estimate of $13.76, according to LSEG data.

The company said it will exit the federal government’s Medicare Advantage Part D program in 2027, a business that generates about $1 billion in annual premiums from providing prescription drug coverage to older adults and the disabled.

The underperformance of that business reduced the 2026 forecast by $1 per share, while the roll out of a new Florida Medicaid contract cut earnings by an additional $1.50 per share.

The key readthrough for other insurers is that Medicaid rates don't align with demand for care, so pressure is likely to continue, Wilkes said.