Why Molina Healthcare Is Tanking Today

MarketsMotley Fool

What happened

Shares of Molina Healthcare (NYSE: MOH), a managed care insurer focused on Medicaid, fell 13% as of 10:25 a.m. EST on Monday. The plunge is related to a ruling that was issued late last week by a U.S. district court in Texas.

Continue Reading Below

So what

On Friday, District Judge Reed O'Connor from the Northern District of Texas sided with a coalition of 20 U.S. states that were seeking to invalidate the Affordable Care Act (ACA), more commonly known as Obamacare. Judge O'Connor agreed that the ACA was unconstitutional in light of last year's tax law change that eliminated the penalty for not having health insurance.

This ruling could ultimately pave the way for the undoing of the ACA. That's troubling news for insurers like Molina Healthcare because a sizable portion of its business comes from people with Obamacare coverage.

A number of other health plans and insurers that depend on the ACA for business also fell today in response to this news. Centene fell 6%, Tenet Healthcare dropped 5%, and Community Health Systems plunged 8% as of this writing.

Here's the commentary that Molina's management team shared with investors in response to this news:

Now what

If the ACA is ultimately overturned, it would likely have a serious impact on Molina's financial statements and growth prospects, so I don't think that today's drubbing by traders is unwarranted.

While any changes will likely take time to be implemented, there is a legitimate argument to be made that this announcement significantly raises Molina Health's risk profile. For that reason, I'd caution investors from looking at today's drop as a buying opportunity.

10 stocks we like better than Molina HealthcareWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Molina Healthcare wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 14, 2018

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.