Molina's Q4 Collapse: A 28% Drop Sets Up a Trough Trade

The immediate trading event was a sharp, decisive collapse. On Friday, shares plunged roughly 28% in premarket trading after Molina Healthcare reported a severe fourth-quarter miss. The core of the problem was a staggering earnings shortfall: the company posted an adjusted loss of -$2.75 per share, which dramatically missed analyst expectations of $0.34 per share. This wasn't just a beat-down; it was a fundamental reset of the stock's valuation.

The miss was driven by a combination of headwinds. The company cited approximately $2.00 per share in unfavorable retroactive premium adjustments tied to its California Medicaid business, alongside ongoing medical cost pressures. This pushed the consolidated medical care ratio to 94.6%, a significant deterioration from the prior-year period. While revenue of $11.38 billion beat estimates, the top-line strength was completely overshadowed by the bottom-line disaster.

This sets up the core tactical question. Management has now issued 2026 guidance that signals a challenging year ahead. The company projects premium revenues of $42.2 billion, suggesting a 2% decline year over year. More critically, it expects adjusted earnings of at least $5.00 per share, a figure that falls far short of the $13.71 consensus. The guidance is burdened by $2.50 per share in one-time and operational costs, including a new Florida contract and planned exits from certain Medicare Advantage products.

The market's reaction is clear: it sees a trough year. The 28% drop prices in significant near-term risks, including margin compression and a guidance miss. Yet, the sheer magnitude of the miss and the guidance cut create a potential mispricing opportunity. The question for a tactical investor is whether the stock has now priced in too much bad news, or if the underlying business deterioration is just beginning.

The Trading Setup: Embedded Value vs. 2026 Trough

The immediate valuation disconnect is stark. The company's underlying business, measured by its embedded earnings at year-end 2025, exceeded $11 per share. This provides a tangible floor for the stock. Yet, management's official 2026 guidance calls for adjusted earnings of at least $5.00 per share. The market is pricing in a severe trough year.

Digging deeper, the guidance includes significant one-time and operational costs. Management clarified that the underlying business, after adjusting out these burdens, is closer to about $7.50 per share. This is a critical distinction. It means the $5.00 figure embeds a $2.50 per share penalty for specific 2026 events, including Florida start-up costs and planned exits from certain Medicare Advantage products. The embedded value of $11 per share suggests the core engine is still profitable, even if the near-term path is rocky.

The key near-term risk is the planned exit from traditional Medicare Advantage (MAPD) in 2027. This transition could disrupt the company's margin trajectory and pressure results in the year ahead. While management expects Medicaid rates to improve as states recognize underfunding, the path to those better margins is blocked by 2026's operational headwinds and the looming MAPD exit. The stock's collapse has priced in this difficult year, but the embedded value implies the worst may be priced in.

Catalysts and Technical Levels to Watch

The trading thesis now hinges on two specific catalysts and a clear technical structure. The primary near-term event is the launch of the new Florida CMS contract in late 2026. Management has framed this as a key growth driver, with the contract expected to yield $6 billion in annual premium revenue. Any delay or operational stumble in this rollout would directly challenge the embedded value thesis and likely trigger further downside.

More immediately, watch for any revision to the 2026 Medicaid Medical Care Ratio (MCR) guidance. Management has set a target of 92.9% for the year, a level that assumes a ~5% core medical cost trend and the impact of start-up costs. If the company signals that medical cost trends are accelerating beyond that core level, it would confirm the guidance is too optimistic and pressure the stock toward the $100 support level.

Technically, the ~28% drop has likely broken key support. The setup is now binary. A retest of the pre-earnings high near $150 would signal a potential short squeeze or a belief that the Q4 miss was an isolated event. However, the more probable path is a breakdown toward the $100 level if guidance is revised or if the Florida contract launch faces delays. This $100 level represents a major psychological and technical floor, and a break below it would suggest the market is pricing in a more severe trough year than the current $5.00 EPS guidance already assumes.

The bottom line is that the stock's collapse has priced in a difficult 2026. The catalysts and levels to watch are the specific events that will confirm whether this trough is already reflected or if it has further to fall.