Molina Healthcare's Undervaluation and Michael Burry's Bullish Case for Long-Term Investors

The healthcare sector, long a cornerstone of economic resilience, has faced significant headwinds in 2025. Regulatory uncertainties, macroeconomic pressures, and shifting reimbursement dynamics have depressed valuations across the industry. Yet, within this landscape of pessimism, Molina Healthcare (MOH) stands out as a compelling case for contrarian value investors. With a price-to-earnings (P/E) ratio of 10.66 and a price-to-book (P/B) ratio of 0.2-far below sector averages-the stock appears to trade at a stark discount to its intrinsic value. This undervaluation, coupled with Michael Burry's high-conviction bets and a favorable Medicaid market position, suggests a compelling long-term opportunity for those willing to look beyond short-term volatility.

A Tale of Two Metrics: Growth and Margins

Molina Healthcare's 2025 financial performance reflects a paradox. The company reported $44.55 billion in revenue, with a three-year growth rate of 14.1%, driven by Medicaid expansion and strategic acquisitions. Yet, its profitability metrics remain anemic: an operating margin of 2.97% and a net margin of 1.98%. These figures, while modest, mask the company's operational discipline. Molina has consistently managed expenses and maintained long-term underwriting performance, qualities that analysts argue are underappreciated in its current valuation.

The disconnect between revenue growth and profitability is partly attributable to Medicaid's inherent challenges. The program's reimbursement rates often lag behind rising medical costs, squeezing margins. In Q3 2025, Molina's medical cost ratio (MCR) reached 92.6%, a level that has drawn scrutiny from regulators and investors alike. However, this metric also highlights the company's exposure to a sector where disciplined operators can outperform peers.

Michael Burry's Contrarian Bet

Michael Burry, the investor immortalized in The Big Short for his contrarian bets, has positioned Molina Healthcare as a key holding in his Scion Asset Management portfolio. His stake in MOH is now worth $20.5 million, representing 37.26% of the firm's equity portfolio. Burry's recent activity-adding 125,000 shares in Q3 2025-underscores his confidence. Publicly, he has compared Molina to Geico, a company he admires for its ability to thrive in low-margin insurance markets.

Burry's rationale hinges on Medicaid's structural advantages. Unlike private insurance, Medicaid is a guaranteed market with stable, albeit low, reimbursement rates. Molina's ability to manage costs and maintain profitability in this environment, Burry argues, positions it as a "takeover target" in a sector where consolidation is inevitable. His bullish stance is further reinforced by Molina's recent guidance revisions. While the company cut 2025 earnings forecasts due to rising medical costs, Burry sees this as a temporary setback. He has publicly stated that Molina will remain profitable in Medicaid by 2026, while many competitors face losses.

Valuation Discrepancies and Sector Context

Molina's valuation metrics starkly contrast with those of the broader healthcare sector. As of December 2025, the sector's average P/E ratio stood at 25.9x, with a forward P/E of 16x. Molina's P/E of 10.66 is nearly 50% below this benchmark, suggesting a significant discount. Similarly, its P/B ratio of 0.2 is far lower than the sector average, indicating that the market values the company at a fraction of its book value.

This undervaluation is further supported by intrinsic valuation models. According to AlphaSpread, Molina's intrinsic value is estimated at $365.23, compared to its current market price of $173.01. This gap implies a potential upside of over 100% for long-term investors. Analysts from 32 firms have echoed this sentiment, assigning a "Buy" rating and a consensus price target of $215.59.

The Medicaid managed care sector itself provides additional context. Molina is among the "Big Five" national players, alongside Centene and UnitedHealth Group, which collectively dominate 68% of Medicaid revenues in Q3 2025. Despite its 12% year-over-year revenue growth, Molina's market share has been eroded by enrollment declines due to redeterminations and eligibility changes. Yet, its disciplined approach to underwriting and cost control positions it to outperform peers in a sector where margins are increasingly under pressure.

Risks and Realities

No investment thesis is without risks. Molina's recent legal investigations into management's medical cost assumptions and its exposure to ACA subsidy reductions could weigh on profitability. Additionally, Medicaid's reimbursement rates are subject to political and regulatory shifts, which could further compress margins. However, these risks are already priced into the stock, which has fallen 53% year-to-date. For contrarian investors, this volatility represents an opportunity to acquire a fundamentally sound business at a discount.

Conclusion: A Contrarian's Opportunity

Molina Healthcare's valuation appears to reflect a worst-case scenario rather than its long-term potential. Michael Burry's high-conviction bets, the company's disciplined operations, and its favorable position in the Medicaid sector all point to a compelling case for value investors. While the path to profitability may be bumpy, the gap between current valuations and intrinsic worth suggests that patience will be rewarded. In a market that often overreacts to short-term challenges, Molina Healthcare offers a rare opportunity to invest in a business with durable competitive advantages at a price that defies conventional wisdom.