Does Molina Healthcare (MOH) Have a Good Graham Number?

Molina Healthcare does not have the profile of a defensive investment based on the requirements of Ben Graham. The Medical Specialities firm may nonetheless be of interest to more risk-oriented investors who have a solid thesis on the company's future growth. At Market Inference, we remain agnostic as to such further developments, and prefer to use a company's past track record as the bellwether for future potential gains.

Molina Healthcare Is Probably Overvalued

Graham devised the below equation to give investors a quick way of determining whether a stock is trading at a fair multiple of its earnings and its assets:

√(22.5 * 6 year average earnings per share (8.18) * 6 year average book value per share (62.431) = $124.24

At today's price of $323.53 per share, Molina Healthcare is now trading 160.4% above the maximum price that Graham would have wanted to pay for the stock.

Even though the stock does not trade at an attractive multiple, it might still meet some of the other criteria for quality stocks that Graham listed in Chapter 14 of The Intelligent Investor.

Positive Retained Earnings From 2010 To 2022, No Dividend Record, and Eps Growth In Excess Of Graham'S Requirements

Ben Graham wrote that an investment in a company with a record of positive retained earnings could contribute significantly to the margin of safety. Molina Healthcare had positive retained earnings from 2010 to 2022 with an average of $1.1 Billion over this period.

Another one of Graham's requirements is for a 30% or more cumulative growth rate of the company's earnings per share over the last ten years.To determine Molina Healthcare's EPS growth over time, we will average out its EPS for 2009, 2010, and 2011, which were $0.79, $0.39, and $0.45 respectively. This gives us an average of $0.54 for the period of 2009 to 2011. Next, we compare this value with the average EPS reported in 2020, 2021, and 2022, which were $11.23, $11.25, and $13.55, for an average of $12.01. Now we see that Molina Healthcare's EPS growth was 2124.07% during this period, which satisfies Ben Graham's requirement.

We have no record of Molina Healthcare offering a regular dividend.

Too Much Debt and an Average Current Ratio

Graham sought companies with extremely low debt levels compared to their assets. For one, he expected their current ratio to be over 2 and their long term debt to net current asset ratio to be near, or ideally under, under 1. Molina Healthcare fails on both counts with a current ratio of 1.5 and a debt to net current asset ratio of 3.0.


According to Graham's analysis, Molina Healthcare is likely a company of average quality, which does not offer a significant enough margin of safety for a risk averse investor.

2018-03-01 2019-02-19 2020-02-14 2021-02-16 2022-02-14 2023-02-13
Revenue (MM) $19,883 $18,890 $16,829 $19,423 $27,771 $31,974
Gross Margins 12.0% 16.0% 17.0% 15.0% 12.0% 12.0%
Operating Margins 1% 6% 6% 5% 4% 4%
Net Margins -3.0% 4.0% 4.0% 3.0% 2.0% 2.0%
Net Income (MM) -$512 $707 $737 $673 $659 $792
Net Interest Expense (MM) -$118 -$115 -$87 -$102 -$120 -$110
Depreciation & Amort. (MM) -$178 -$127 -$89 -$88 -$131 -$176
Earnings Per Share -$9.08 $10.62 $11.52 $11.22 $11.26 $13.54
EPS Growth n/a 216.96% 8.47% -2.6% 0.36% 20.25%
Diluted Shares (MM) 56 67 64 60 58 58
Free Cash Flow (MM) $890 -$284 $491 $1,972 $2,196 $864
Capital Expenditures (MM) -$86 -$30 -$57 -$74 -$77 -$91
Net Current Assets (MM) $377 $955 $1,140 $440 $485 $734
Long Term Debt (MM) $1,516 $1,217 $1,468 $2,127 $2,173 $2,176
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.