U.S. stocks edge higher; solid earnings season continues
Investing.com - Jefferies has lowered its price target on Oscar Health Inc (NYSE:OSCR) to $9.00 from $12.00 while maintaining an Underperform rating, citing concerns about the health insurer’s risk adjustment accruals. The company, currently trading at $16.08 with a market capitalization of $4.1 billion, has seen its stock rise nearly 20% year-to-date despite the concerns. According to InvestingPro data, analyst targets for the stock range from $12 to $28, suggesting mixed views on its valuation.
The firm’s analysis suggests Oscar Health could face approximately $880 million in additional risk adjustment payables for plan year 2025, similar to issues recently experienced by Centene (NYSE:CNC) Corporation. While InvestingPro data shows the company maintains a "GREAT" overall financial health score and achieved significant revenue growth of 54% in the last twelve months, Jefferies notes Oscar Health is particularly vulnerable as a health insurance exchange pure-play with about 90% of its premiums coming from states where risk pool shifts are expected to be most dramatic.
Oscar Health’s exposure is concentrated in Florida, Georgia, and Texas, which represent 87% of its membership. These states appear to be the most distorted markets according to Jefferies’ analysis, potentially leading to a 6.9% weighted average "miss" in risk score estimates. Despite these challenges, InvestingPro indicates the company is expected to remain profitable this year, with 8 additional key insights available to subscribers through the comprehensive Pro Research Report.
The firm points out that during Oscar’s first quarter earnings call, management indicated plans to accrue plan year 2025 risk adjustments consistent with plan year 2024. However, after a $92 million adjustment discussed on the call, Oscar accrued approximately 15% payable for plan year 2024 but started 2025 at just 8.4% in the first quarter.
Jefferies believes Oscar Health likely made the same risk adjustment reserving error as Centene, which involved accruing to a scenario where risk scores moved in tandem with industry average risk scores when in reality industry risk scores increased approximately 6.3% more than Centene’s own book in its states.
In other recent news, Oscar Health reported strong first-quarter 2025 earnings, exceeding Wall Street expectations with earnings per share of $0.92, surpassing the forecasted $0.81. The company also outperformed revenue projections, reporting $3.05 billion compared to the anticipated $2.84 billion, marking a 42% year-over-year revenue growth. Additionally, Oscar Health achieved a net income of $275 million, showing a $98 million improvement from the previous year. Meanwhile, Piper Sandler adjusted its price target for Oscar Health from $25 to $18, maintaining an Overweight rating, due to potential policy changes impacting the Affordable Care Act marketplace. Barclays (LON:BARC) initiated coverage on Oscar Health with an Underweight rating and a $17 price target, citing policy risks that could affect the company’s margin and growth targets. Despite these concerns, Oscar Health’s shares have seen significant interest from retail investors, according to Barclays. The company’s strategic focus on technology and innovation continues to drive its expansion and operational efficiencies. These recent developments highlight the dynamic environment in which Oscar Health is operating.
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