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MOLINA HEALTHCARE, INC. Introduction and BackgroundOverviewMolina Healthcare, Inc. (MOH) is a multi-state health care organization that arranges for the delivery of health care services and offers health information management solutions to nearly five million individuals and families who receive care through Medicaid, Medicare and other government-funded programs in fifteen states.

Medicaid Molina Healthcare contracts with state governments and serves as a health plan, proving a wide range of quality health care services to families and individuals who qualify for government-sponsored programs, including Medicaid and the State Children’s Health Insurance Program (SCHIP). They offer Medicaid plans in California, Florida, Illinois, Michigan, Ohio, Puerto Rico, New Mexico, South Carolina, Texas, Utah, Washington, and Wisconsin. Molina Healthcare also offers Medicare Advantage plans designed to meet the needs of individuals with Medicare or both Medicaid and Medicare coverage. They offer comprehensive, quality benefits and programs including access to a large selection of doctors, hospitals and other health care providers at little to no out-of-pocket cost.

Molina Health offers their own Marketplace plans in many of the states where they offer Medicaid health plans. Their plans allows their Medicaid members to stay with their providers as they transition between Medicaid and the Marketplace. This also removes the financial barriers to quality care and keep members’ out-of-pocket expenses to a minimum.

Beyond their health plans, Molina Healthcare owns and operates medical clinics in California, Florida, New Mexico, Virginia, and Washington.

Through its wholly-owned subsidiary, Molina Medicaid Solutions, Molina’s Medicaid management information systems’ design, development, implementation and operation expertise provide the technological foundation needed by state agencies to meet current and future Medicaid Information Technology Architecture (MITA) business process and regulatory health care requirements. Molina Medicaid Solutions’ fiscal agent contracts in Idaho, Louisiana, Maine, New Jersey and West Virginia provide service to more than 3.4 million Medicaid beneficiaries.

HistoryTheir story is about being a familyThe Molina Healthcare story is about one man’s belief that when it comes to health care everyone should be treated like family.

It was in 1980 when an emergency room physician, C. David Molina, MD, noticed that low-income, uninsured or non-English speaking patients were coming to the emergency roomin need of general health care services. Without family doctors, they were not able to get the right care and information. These underserved families deserved better which encouraged Dr. Molina do take action.

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He opened a clinic in Long Beach, California to provide low-income individuals and families with a place to go to get personalized health care from Molina doctors. Two more clinics opened that same year and today their health plans and clinics serve patients across the country.

Mission and VisionMolina Healthcare’s mission is to provide quality health services to financially vulnerable families and individuals covered by government programs. Molina Healthcare has health plans, medical clinics and a health information management solution. No other organization of its kind does all three.

Commitment to Quality Molina Healthcare continues to be among the national leaders in Medicaid health plan quality accreditation. Their goal is for all Molina health plans to become accredited by the National Committee for Quality Assurance (NCQA), an independent, not-for-profit organization dedicated to improving the quality of health care.

Current Market Position The company faces stiff competition across different market it serves, which may affect its business. It competes with various managed care companies based on the factors such as price, size, and quality of provider networks, benefits provided as well as quality of service. The managed care industry is currently subject to significant changes from business consolidations, new strategic alliances, legislative reforms, aggressive marketing practices by other health benefits organizations and market pressures brought on by an informed and organized customer base, especially large employers. This environment is likely to continue and produce increased significant pressures of the profitability of health benefits companies. Molina Healthcare’s major competitors include UnitedHealth Group, Humana, Aetna, Health Net, CIGNA and Centene.

Corporate GovernanceRole and Composition of the Board of Directors The Board is committed to monitoring the effectiveness of policy and decision-making both at the Board and management level in order enhance stockholder value over the long term.

The Board is able to freely choose its Chairman in any way that seems best for the company at any given point in time. The entire Board is responsible for nominating candidates for elections to the Board at the Company’s annual meeting of stockholders.

Molina Healthcare requires that independent directors needs to constitute a majority of the Board. In addition to the majority of the Board being independent directors, they must also appoint a Lead Independent Director who shall preside at all meetings of the Board.

The Board composition is worrisome because although they insist that a majority of it stays independent, the Chairman of the Board is also the CEO which may result in conflicting interests. Another aspect to be aware of is that a majority of members of the board are also high ranking executives with Molina Healthcare, specifically gaining control of the company when their father David Molina passed away.

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Director Compensation and Stock Ownership DIRECTOR COMPENSATION

Members of the Molina family, either directly or as trustees or beneficiaries of Molina family trusts are entitled to receive approximately 26% of Molina Healthcare capital stocks as of December 31, 2015. Their president and chief executive office, as well as their chief financial officer, are members of the Molina family, as well as on their board of directors. Because of the amount of their shareholdings, Molina family members, if they were to act as a group with the trustees of their family trusts, have the ability to significantly influence all matters submitted to stockholders for approval, including the election of directors, amendments to the charter, any merger, consolidation, or sale of Molina Healthcare. A significant concentration of share ownership can also adversely affect the trading price for common stock because investors often discount the value of stock in companies that have controlling stockholders. A concern with the Molina family owning a majority of the stock is that the objectives of the Molina family may be different than those of the company or stockholder which allows them to vote for their common stock in a manner that may be contrary to the vote of other stockholders.

CEO Evaluation The Board is responsible for ongoing evaluation of the CEO. This is accomplished through the following:

The CEO will meet with the Compensation Committee to develop appropriate goals and objectives for the next year, which are then discussed with the entire board

At years end, the Compensation Committee, with input from the Board, evaluates the performance of the CEO in meeting these goals and objectives

This evaluation is then communicated to the CEO at an executive session of the Board The Compensation Committee uses this evaluation in determining the CEO’s compensation

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Board of Directors Members:

Leadership Team J. Mario Molina, MD, President and Chief Executive Officer, has been with Molina Healthcare for over twenty-five years.

John C. Molina, JD, Chief Financial Officer, has worked at Molina Healthcare since day one when his father C. David Molina, MD, opened its first clinic doors to the Long Beach, California community. Today, he oversees all financial activity as well as expansion efforts for the organization.

Terry Bayer, JD, MPH, Chief Operating Officer, oversees the operations of Molina Healthcare’s nine state health plans, as well as provider payment and information systems. She has over twenty-five years of health care management experience and is dedicated to Molina Healthcare’s mission.

Dr. Martha Molina Bernadett, Executive Vice President of Research and Development, is responsible for long-term planning initiatives that enhance the delivery of health care services. She has worked as a physician as well as in leadership roles in Molina Healthcare. She is the president and founder of The Molina Foundation and the eldest daughter of C. David Molina, MD.

Jeff D. Barlow, Senior Vice President, General Counsel, and Secretary,

Joseph W. White, MBA, CPA, Chief Accounting Officer,

Juan Jose Orellana, MBA, Senior Vice President, Investor Relations & Marketing,

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Rick Hopfer, Chief Information Officer has served as CIO for Sony Pictures Entertainment and as Senior Vice President. Prior to working with Molina Healthcare, he worked at Homestore International as the Chief Technology Officer.

Dividends and Stock Repurchases Stock Repurchases Effective as of December 16, 2015, Molina Healthcare’s board of directors authorized the repurchase of up to $50 million in aggregate of their common stock or senior notes. This newly authorized repurchase program is running until December 31, 2016.

Purchases of common stock made by or behalf of the Company during the quarter ended December 31, 2015, including shares withheld by the Company to satisfy employees’ income tax obligations, are set forth below:

Dividends To date, Molina Healthcare has not paid cash dividends on their common stock. They currently intend to retain any future earnings to fund their projected business growth. Their ability to pay dividends is dependent on receipt of cash dividends on their regulated subsidiaries. The ability of their regulated subsidiaries to pay dividends to Molina Healthcare is limited by the state departments of insurance in the operating states as well as requirements of the government-sponsored health programs in which they participate. Any future determination to pay dividends will be at the discretion of their board of directors and will depend on factors such as results of operations, financial condition, capital requirements, and contractual and regulatory restrictions.

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Capital Structure Stock Price Analysis

DateAdj

CloseCurrent

Price 6-21 High Low YoYHighest

YoYLowest

YoYAverage

YoYSTDEV

YoY

6/1/2016 $52.00 $51.27 $75.43 $15.44 -26.03% 84.65%-

33.42% 28.18% 27.68%5/2/2016 $48.43 -33.42%4/1/2016 $51.76 -12.61%3/1/2016 $64.49 -4.16%2/1/2016 $62.04 -2.59%1/4/2016 $54.91 7.86%

12/1/2015 $60.13 12.33%11/2/2015 $60.26 17.88%10/1/2015 $62.00 27.47%

9/1/2015 $68.85 62.77%8/3/2015 $74.59 55.92%7/1/2015 $75.43 84.65%6/1/2015 $70.30 57.52%5/1/2015 $72.74 68.81%4/1/2015 $59.23 58.37%3/2/2015 $67.29 79.15%2/2/2015 $63.69 69.03%1/2/2015 $50.91 41.42%

12/1/2014 $53.53 54.04%11/3/2014 $51.12 52.14%10/1/2014 $48.64 53.73%

9/2/2014 $42.30 18.82%8/1/2014 $47.84 43.28%7/1/2014 $40.85 10.05%6/2/2014 $44.63 20.04%5/1/2014 $43.09 13.99%4/1/2014 $37.40 12.65%3/3/2014 $37.56 21.67%2/3/2014 $37.68 18.08%1/2/2014 $36.00 25.39%

12/2/2013 $34.75 28.42%11/1/2013 $33.60 20.69%10/1/2013 $31.64 26.21%

9/3/2013 $35.60 41.55%8/1/2013 $33.39 37.75%7/1/2013 $37.12 52.07%6/3/2013 $37.18 58.48%

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5/1/2013 $37.80 48.18%4/1/2013 $33.20 29.43%3/1/2013 $30.87 -8.21%2/1/2013 $31.91 -6.04%1/2/2013 $28.71 -6.21%

12/3/2012 $27.06 21.18%11/1/2012 $27.84 27.41%10/1/2012 $25.07 18.37%

9/4/2012 $25.15 62.89%8/1/2012 $24.24 26.05%7/2/2012 $24.41 7.77%6/1/2012 $23.46 -13.50%

MOH current stock price on June 1, 2016 is $51.27. The lowest stock price was $15.44 on September 1, 2011 and the highest was $75.43 on July 1, 2015.

The lowest YOY return was -33.42% on May 2, 2016 and the highest YOY return was 84.65% on July 1, 2015. The average YOY was 28.18% and the standard deviation was 27.68%.

WACC Analysis Debt $1,411,000,000

Equity $2,900,000,000

% Debt 32.73%

%Equity 67.27%

Cost of Debt 4.68%

Tax Rate 55.59%

Cost of Equity 10.63%

Risk Free Rate 1.71%

Beta .96

Market Risk Premium 9.29%

WACC 7.83%

MOH is financed 67.27% by equity and 32.73% by debt. Their cost of equity is 10.63%, which means that for every $1 MOH borrows it costs them $ 0.01063 to their investors. The WACC is the overall required return on the firm which is used by the company to determine the feasibility of expansionary opportunities. When determining whether or not to take on a new project, managers may use the

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WACC and compare it to the return earned on a potential project. If the return on the project is higher than the WACC, that project adds value to the company.

Company Valuation

Cash Flow from Operations $139,000,000.00

Capital Expenditures $46,000,000.00

Interest $66,000,000.00

Tax Rate 55.59%

FCF $93,000,000.00

WACC 7.83%

Discounted Cash Flow

PE Multiple 13.41

PEG Ratio 1.04

5 Year Growth Rate 12.89%

Value of Operations $4,075,320,798.84

Shares Outstanding 56,580,000

Per Share Value $47.13

The current Market Cap for Molina Healthcare is 2.89B. Market Cap is the number of shares outstanding multiplied by the current market price of one share and it reflects the total value of the firm in the current market place. The Market Cap of $2,890,000,000 is completely different from the Value of Operations which is $4,075,320,798.84. Based on this evaluation the market place is undervaluing Molina Healthcare stocks. Due to this undervaluation MOH may consider buybacks at this current discounted rate.

It would also be beneficial to investors to buy more shares of Molina Healthcare because it is currently selling for a price below its true value of operations or for Molina Healthcare to buy back their own shares.

Instinctually, people tend to buy stocks when the price is rising because the rising price indicates that the company is doing well. This is the worst time to purchase stock because you are missing out on the gains of the market. If you purchase the stock while prices are low, there is more room for rising value of the stock. In order for stockholder to maximize their wealth, they should buy low and sell high.

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Sensitivity Analysis

Free Cash Flows $93,000,000.00 Valuation $4,075,320,978.84 Per Share Value $47.13

Increased by 10% $102,300,000.00 Increase $4,482,852,878.72 Per Share Value $54.33

Decreased by 10% $83,700,000.00 Decrease $3,667,788,718.95 Per Share Value $39.92

Growth Rate 12.89% Valuation $4,075,320,978.84 Per Share Value $47.13

Increased by 1% 13.89% Increase $4,277,486,832.23 Per Share Value $50.70

Decreased by 1% 11.89% Decrease $3,881,626,173.63 Per Share Value $43.70

WACC 7.83% Valuation $4,075,320,978.84 Per Share Value $47.13

Add 2% 9.83% Decrease $2,664,397,831.78 Per Share Value $22.19

Subtract 2% 5.83% Increase $8,583,331,117.00 Per Share Value $126.8

0

Increasing free cash flows increased the value of the company by 9.99%, while decreasing cash flows decreased the value of the company by 10%.

Adjusting the growth rate did not have significant effect on the value of operations. Increasing the growth rate by 1% increased value by 4.95%, while decreasing the growth rate decreased the value of operations by 4.75%.

Changing the WACC by 2% had a huge impact on the value of operations for Molina Healthcare. Increasing 2% to the WACC decreased the value of operations by 34.62%, while decreasing the WACC increased the value of operations by 110.62%.

Supply Chains and Working Capital Management Selected Ratios

As of July 20, 2016

Current Ratio 1.32

Return on Equity 10.56%

The current ratio is a liquidity ratio that measures the company’s ability to pay back its obligations. Molina Healthcare’s 1.32 is greater than 1 which is a good sign. This indicates that the company’s assets are greater than their liabilities.

The ROE is the amount of net income returned as a percentage of shareholders equity. This helps measures a company’s profitability based on how much profit it generates with the money they receive from shareholders. The higher the ROE is the better because this shows how effective management is at using equity financing to grow the company. According to Yahoo finance the average ROE for the

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healthcare plan industry is 13.80%. Molina Healthcare’s ROE at 10.56% is slightly lower the industry average and their ROE compared to their competitors is about average with the lowest ROE with Phyhealth Corp at -1575.06% and the highest ROE at 31.31% with Odontoprev SA.

Lease Financing Molina leases administrative and clinic facilities and certain equipment under non-cancelable operating leases that expire in 2025. Their leasing terms for facilities typically range from five to 10 years with renewal options available. In most cases, they are required to make additional payments under facility operating leases for taxes, insurance and other operating expenses incurred during the leasing period. There are a certain amount of their leases that contain rent escalation clauses or lease incentives. These factors are taken into account when determining total rent expense to be recognized during the leasing term.

Future minimum lease payments by year and in the aggregate under all operating leases and lease financing obligations consist of the following approximate amounts:

Mergers and Corporate ControlThe concentration of share ownership in the Molina family could delay or prevent a merger or consolidation, takeover, or other business combination that could be favorable to their stockholders.

Molina Healthcare is a Delaware corporation and the anti-takeover provisions of Delaware law imposes various impediments to the ability of a third party to acquire control of them, even if a change in control would be beneficial to their existing stockholders.

Their board of directors has the power, without stockholder approval, to designate the terms of preferred stock and issue shares of preferred stock. The ability of the board to create and issue a new series of preferred stock and could impede a merger, takeover or other business combination involving Molina Healthcare, or at least discourage a potential acquirer from making a tender offer for their common stock could reduce the market price of their common stock.

In 2015, Molina Healthcare significantly expanded their reach in three of our key states. After entering the Illinois market in 2014, they announced three Medicaid-related acquisitions in the Chicago area last year: Loyola Physician Partners, LLC, MyCare Chicago, and Better Health Network, LLC. These transactions, which closed in the first quarter of 2016, are estimated to add more than 120,000

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Medicaid plan members into Molina Healthcare of Illinois. Meanwhile, in Florida they completed two similarly structured acquisitions. The first, with Preferred Medical Plan, Inc., added approximately 25,000 Medicaid beneficiaries in South Florida, while the second, with Integral Health Plan, Inc., involved more than 100,000 Medicaid enrollees in the Pensacola, Tampa, and southwest regions of the state. In Michigan, they acquired contracts to serve roughly 80,000 members of the state’s Medicaid and MI Child programs from HAP Midwest Health Plan. And in Washington, where we have been working for more than 30 years, we acquired the Medicaid assets of Columbia United Providers, whose 55,000 members in the southwest region will increase the number of individuals we serve statewide by nearly ten percent.

Future Mergers and Acquisition Strategy Molina Healthcare is working to acquire managed care contracts from health plans in the states where we already have an established presence. Through such acquisitions based selectively on attractive pricing and in states with a favorable regulatory environment, they can strengthen their competitive position while simultaneously improving their efficiency by adding to their membership base.

The second pillar of their strategy involves acquiring key capabilities that they currently lack, but would be of strategic significance to the company. On this front, they have successfully completed the purchase of Providence Human Services, a provider of behavioral and mental health services with 6,800 employees and operations in 23 states and the District of Columbia. Their plan is to will operate business as a wholly owned subsidiary of Molina Healthcare under the brand name Pathways SM.

Conclusion Molina Healthcare has a few aspects that make it a valuable investment. For example, their sales grew by 37% year on year in the first quarter of 2016. Overall their revenue growth has been 29.2% over the last five years! Their stock price is also at a steady rate despite all of the changes in the healthcare industry and economy.

An area that Molina Healthcare can use would be to delegate some of their free cash flows into acquisitions of new managed care plans for expansion. It may be in Molina’s best interest to consider mergers and acquisitions with small scale pharmaceutical companies. Through this merger Molina Healthcare will be able to get better prices from manufactures to provide cheaper generic drugs to their patients and hospitals. Another acquisition that may be beneficial to their company is to acquire a fitness chain to expand their scope of health care. This acquisition can encourage their patients into a healthier lifestyle which attributes to the mission of the company as well as gives them another means of service to gain revenues from.

The most obvious way of increasing value to the company is to try to decrease their WACC. In order to do this one option Molina has is to do some capital restructuring which involves substituting more debt in place of equity. Molina’s debt structure is at 32.72% with 67.28% in equity, they have a bit of room to take on more debt to lower their costs after taxation. Another option they have to decrease their WACC is to start offering preferred stock instead of only common stock.

Overall, Molina Healthcare is performing at a stable rate for an industry that is going through a lot of governmental change and regulation. If they make some slight adjustments, they should be able to increase their shareholder’s wealth while maintaining positive financial standings.