Credit Suisse https://www.credit-suisse.com called eHealth (EHTH) https://www.ehealthinsurance.com company is making a capital allocation choice by pursuing higher-quality enrollments (i.e.) higher LTVs) in Q4 as opposed to just driving enrollment growth as in Q3.
Management wishes they had guided people more specifically to what the enrollment growth would have been in Q3 because the trends in Q3 tracked internal expectations. Management’s plan for the back half of the year, is for Q4 to have a disproportionally higher growth rate compared to the year and compared to Q3. EHTH reiterates their confidence in ~60% Y/Y growth in their Medicare approved members in 4Q20 (70%+Y/Y growth in MA approved members).
For 3Q20, EHTH’s expectation for TTM MA Member turnover ratio was flat to down 100bps sequentially but still within the company’s internal outlook range, albeit at the high end. EHTH notes that in Q3 and even in Q4, the metric is sensitive as the churn numbers are small relative to the TTM. With respect to Q4, the company expects Member Turnover to increase which is similar to the trends in prior years, and the TTM MA Member turnover to be flat to down 100 bps.
EHTH expects their partner channel to be a pretty strong contributor in 4Q. EHTH is now going deeper with regional partners as well as with national retailers, including Walmart, Costco, Walgreens etc. which were relatively smaller partners of EHTH previously. With respect to Walmart, EHTH notes that given the partnership, EHTH is going to take all of Walmart’s tele-sales overflow volumes which could be significant for EHTH this AEP.
Credit Suisse analysts have estimated 2020/2021 revenue estimates to be $650/$832 min (vs $638/$835 min previously.) The analysts have reported that their 2020/2021 EPS estimates are $4.14/$5.13 (vs $4.02/$5.12 previously.
Credit Suisse is rolling forward their EV/BITDA multiple to 2022E and adjusting the one year forward value multiple to 12x (vs 15x previously) which yields a 12 month TP of $139 (unchanged). Risks include increase in churn rate, MA enrollment slowdown etc.
For more information and/or to provide feedback, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.