On Tuesday, Jefferies initiated coverage on Oscar Health Inc (NYSE:OSCR), currently trading at $16.55, with a rating of Underperform and a price target of $12.00. Despite the stock's impressive 105% gain over the past year, the firm highlighted management's efforts in strengthening the company's foundation but expressed concerns about the growth prospects of the Health Insurance Exchange (HIX) market, which is central to Oscar Health's operations.
According to InvestingPro data, the company's stock has shown significant volatility recently.
The analysis by Jefferies points to an anticipated unwinding of the HIX market growth, which has been buoyed by enhanced subsidies and lenient disclosure enforcement. The firm projects a significant decline in membership for Oscar Health, expecting a 28% reduction, alongside a greater than 50% drop in the HIX industry's EBIT from 2024 to 2027. The company currently trades at a high P/E ratio of 136x, suggesting investors are pricing in significant growth expectations.
Jefferies notes that Oscar Health's significant exposure to states sensitive to subsidies could pose additional challenges. Despite the company's strong management team, the analyst believes it is unlikely that the potential headwinds can be fully mitigated through the Individual Coverage Health Reimbursement Arrangement (ICHRA) and stock buybacks.
The price target of $12.00 is based on a 10 times multiple on the projected earnings per share (EPS) of $1.20 for the year 2027. The Underperform rating reflects the firm's cautious stance on the stock's near-term performance in light of the market dynamics outlined.
While Jefferies sets a $12 target, other analysts maintain targets ranging from $13.50 to $28.00. For deeper insights into Oscar Health's valuation and 13 additional key investment tips, check out the comprehensive analysis available on InvestingPro.
In other recent news, Oscar Health has reported a significant surge in its third-quarter revenue and profits. The health insurance provider announced a 68% year-over-year increase in both revenue, reaching $2.4 billion, and membership, totaling approximately 1.65 million members. This strong performance has led the company to raise its 2024 revenue guidance to between $9.2 billion and $9.3 billion.
In addition to these financial highlights, Oscar Health is targeting a 20% revenue compound annual growth rate (CAGR) and a 5% operating margin by 2027. The company is also planning new product launches and market expansions, including a tech-first HMO and a return to the California market.
Despite potential challenges from CMS's program integrity efforts, Oscar Health remains optimistic about its future growth, expecting strong operational performance to continue into 2025.
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