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Investing.com - JPMorgan has downgraded Medibank Pvt Ltd. (ASX:MPL) (OTC:MDBPF) from Overweight to Neutral while raising its price target to AUD5.10 from AUD4.80 ahead of the company’s upcoming financial results.
The Australian health insurer is scheduled to release its FY25 results on August 28. JPMorgan believes Medibank has substantial buffers in its underlying management claims assumptions for FY25, which should ensure a strong second-half performance.
Looking beyond the current fiscal year, JPMorgan identified several challenges that prompted the downgrade. These include a lower CY25 rate increase compared to competitors, likely claims cash inflation, and discounting by Medibank to boost volumes in the second half of the year.
The investment bank also noted pressures from Australia’s health minister for higher hospital benefit payout ratios, suggesting that some targets being discussed would be "unachievable for the for-profit sector without sharp profit margin pain."
While Medibank’s FY25 gross margin may increase modestly due to growth in higher-margin non-resident premiums, JPMorgan indicated the company’s previously reported low per-policy inflation of approximately 2.5% is substantially below contracting trends in the market.
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