I would hold Ehealth (EHTH) despite the disappointing price trend.
Due to the underperformance of conventional segments, corporate earnings have been negative in recent quarters, with the stock losing more than 80% in the past year.
Things did not go well for Ehealth shareholders. The near future doesn’t look any better either, as the company is expected to post another loss this year.
Moreover, the current environment is far from easy, with high inflation, geopolitical tensions and the risk of recession fueling extreme uncertainty.
Meanwhile, Ehealth is in the midst of a business transformation aimed at increasing the profitability of its online platform. If successful, this should contribute to better times for the stock price once macro headwinds ease.
Ehealth, Inc. operates eHealth.com and eHealthMedicare.com, two online health insurance marketplaces that provide consumers with health insurance enrollment solutions from more than 200 health insurers in the United States.
Individuals, families and small businesses can choose from a variety of health insurance plans.
Ehealth’s corporate headquarters are located in Santa Clara, California.
The company aims to return to profitable growth, not without implementing significant cost reduction measures. By phasing out the most inefficient operations, it aims to save about $60 million this year.
Specifically, the company’s strategy is to slow down traditional telephone registration and focus on growing online business to gain market share.
With a revamped business that will focus primarily on online activities, the company hopes to be better positioned to benefit from the expected growth in the US healthcare and medical insurance market.
Intelligence of Mordor estimates that the US healthcare and medical insurance market size will grow at an annual rate of 8%, over the next few years to 2027. This must be driven by high deductible healthcare plans which are gaining popularity with the public.
On TipRanks, EHTH scores 1 out of 10 on the Smart Score spectrum. This indicates high potential for the stock to underperform the market as a whole.
First quarter 2022 financial results
In the first quarter of 2022, revenue was $105.3 million, down 22% year-over-year due to the impact of certain company initiatives to improve quality registrations. The company beat analysts’ median forecast for Q1 2022 revenue of $4.74 million.
By segment, Medicare was down 21.45% year over year to $95.07 million, while Individuals, Families and Small Business was down 22.82% year over year. the other at $10.18 million. Medicare accounted for 90.3% of total revenue, while individuals, families and small businesses accounted for the remaining 9.7%.
In the first quarter of 2022, the company reported pro forma net loss of $0.91 per share, while in the same quarter of 2021, it reported pro forma net income of $0.36 per share. Analysts predicted a larger net loss of around $1.19 per share.
Adjusted EBITDA also declined year over year, as it was a loss of $24.83 million in the first quarter of 2022 compared to a positive result of $17.31 million in the first quarter of 2021.
Additionally, the company generated $47.11 million in operating cash flow for the first quarter of 2022, compared to $42.81 million for the first quarter of 2021.
For 2022, the company forecasts total revenue of between $448 million and $470 million, compared to an average analyst forecast of $459.73 million.
The company also expects GAAP net loss to be between $106 million and $83 million and adjusted EBITDA to be a loss between $64 million and $37 million.
Total cash outflow estimates incorporate the company’s forecast for 2022 and are expected to be between $140 million and a high of $120 million.
The financial situation
As of March 31, 2022, the balance sheet showed cash of $231.5 million, which was significantly more than the total debt of $105.05 million. Total debt included long-term debt and obligations under short-term and long-term leases.
This means that the business must have enough cash to support its operational needs for a few years to come. However, as the Altman Z-Score below shows, the financial situation needs to be strengthened.
Ehealth has an Altman Z score of 1.41 indicating areas of distress. This means that the company could go bankrupt within the next two years.
For those who may not be aware, the Altman Z-Score indicates the likelihood of a company going bankrupt.
A value of 1.8 or less indicates that a company is in the distress zone, so the likelihood of bankruptcy is extremely high.
The Taking of Wall Street
Over the past three months, eight Wall Street analysts have released a 12-month price target for EHTH. The stock has a consensus holding rating based on zero buy, eight hold and zero sell ratings.
The average price target for eHealth is $12.71, implying an upside potential of 22.68%.
The shares are changing hands at $10.98 at the time of writing for a market cap of $194.66 million and a 52-week range of $7.89 to $66.47.
After falling more than 80% over the past year, the stock price is 2.25 times below the 200-day moving average of $24.70. Currently, the share price is at a significant discount to last year’s level, but there is no guarantee to shareholders that they will not suffer further losses.
Until the shift in activity bears fruit, continued market turmoil could push the stock even lower.
Due to several quarters of negative earnings, the stock price has performed poorly over the past year. The company undergoes a business transition which it believes will boost its operations from a profitability standpoint. The company’s future growth opportunities depend on the success of this business transition. The action plan seems interesting and is part of the evolution of the market. It might be worth continuing to hold the stock.
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