Molina Healthcare Inc. (NYSE: MOH) to a real beating on Thursday after reporting a bad miss on first-quarter earnings. The stock was down nearly 20% on Friday after the company said it missed the consensus earnings per share estimate by $0.27.

What happened? During the company’s conference call CEO Joseph Molina said that the big miss was the result of Medicaid reimbursement rates’ failure to keep up with rising medical costs. That failure cost the company $0.55 share in diluted earnings per share.

Revenues increased but that wasn’t enough to offset the rise in costs. Molina appears to have been caught in the same trap that ensnared many other insurers: in an effort to sign up new subscribers the insurers underestimated the number of sick people who would be signing up for coverage under Obamacare after years of being excluded from coverage on the basis of pre-existing conditions. Why insurers were surprised by this is anybody’s guess.

The near future, at least for Molina, does not hold a lot of hope for a dramatic change, according to analysts at Merrill Lynch, who downgraded the stock to Underperform and slashed their price objective from $93 to $50 a share. Here’s what they said:

In addition to higher utilization in these [Ohio, Texas, and Puerto Rico] markets, the company cited an IT system that couldn’t manage its growth as a contributing factor, and the lack of infrastructure is a true concern for a growth company like MOH. MOH lowered adjusted EPS guidance 29% and despite cutting net margin guidance to 0.8%, management reiterated its GAAP net margin target of 1.5-2.0% by the end of 2017. … Our Underperform rating is predicated on low visibility into the ability for MOH to meaningfully improve the medical margin on its base business over a relatively short timeframe in order to achieve 2017 margin targets, particularly in light of the Q1 setback. We believe margins will eventually trend higher, but at a slower pace than expected by management.

Other analyst calls pretty much lined up with this:

• Credit Suisse cut its price target from $64 to $55 and has a Neutral rating on the stock.
• Susquehanna chopped its price target from $92 to $74 and has Positive view.
• Barclays cut its price target from $72 to $54 with an Equal Weight rating.
• Jefferies slashed its target price from $73 to $66 and maintains a Buy rating.
• UBS cut its price target from $76 to $54 and cut the stock’s rating from Buy to Neutral.

Molina’s stock closed at $51.76 on Friday, down 19.4% for the day, in a 52-week range of $48.00 to $82.37. The consensus price range on the stock is $64.43, and that almost surely does not include these recent changes.

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