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On Thursday, Stifel analysts revised their price target for Trupanion, Inc. (NASDAQ:TRUP) stock, lowering it to $41.00 from the previous target of $44.00. Currently trading at $37.16 with a market capitalization of $1.6 billion, InvestingPro analysis suggests the stock is undervalued. The firm retained its Hold rating on the pet insurance provider’s shares. The adjustment was based on several performance indicators from the fourth quarter of 2024.
Trupanion’s fourth quarter saw some positive outcomes, with EBITDA reaching $12.4 million and free cash flow (FCF) exceeding expectations at $38.6 million. This was largely due to the company’s medical loss ratio (MLR) of 70.0%, which showed a year-over-year improvement of 270 basis points, marking the second consecutive quarter of being on target. Additionally, the company’s Subscription adjusted operating income reached $36.0 million, surpassing Stifel’s estimate of $34.5 million. According to InvestingPro, the company maintains strong liquidity with a current ratio of 1.71, indicating healthy short-term financial stability.
However, the analysts expressed concerns over key long-term value drivers for Trupanion, such as retention rates and subscriber growth. While retention slightly missed expectations, the more pressing concern highlighted was the decrease in subscriber growth. In the fourth quarter of 2024, the number of new subscribers (excluding MGA) was 56.8 thousand, representing a 10% decline year-over-year against a 4% comparative period. This decline occurred despite a slight increase in the pet acquisition cost (PAC).
The report also noted Trupanion’s challenges in adding new pets to their service as the average revenue per user (ARPU) increased to $75 per month. Despite these challenges, InvestingPro data shows revenue growth of 16% in the last twelve months, with analysts forecasting continued growth and profitability in the coming year. The analysts suggested that the company is losing market share and facing acceleration in this trend, especially as it grapples with offering competitive plans for lower-end markets. Looking at the broader picture, Trupanion’s gross add compound annual growth rate (CAGR) from 2021 to 2024 stood at only 3%, which is concerning for an industry with an estimated penetration of merely 5%. For deeper insights into Trupanion’s growth prospects and comprehensive analysis, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Trupanion, Inc. reported its fourth-quarter 2024 earnings, which showed mixed results. The company posted an earnings per share (EPS) of $0.04, which fell short of the analyst forecast of $0.07. However, revenue slightly exceeded expectations, coming in at $337.3 million against a projected $335.46 million, representing a 14% increase year over year. Subscription revenue also saw a 19% growth, reaching $227.8 million. Despite these revenue gains, the company experienced a slowdown in growth, attributed to recent rate increases affecting the pace of subscription growth.
Additionally, Trupanion wrote off approximately $5.3 million in goodwill related to acquisitions in Europe, specifically Smart Paws and PetExpert. Analyst firm Piper Sandler responded by lowering Trupanion’s stock target from $57 to $52 but maintained an Overweight rating, reflecting a mix of achievements and challenges in the company’s outlook. Looking ahead to 2025, Trupanion projects revenue between $1.379 billion and $1.414 billion, with subscription revenue expected to grow by 14% year over year. The company also plans to gradually increase pet acquisition spending to return to historical growth rates.
Trupanion’s CEO highlighted the potential in the pet insurance market, noting significant underpenetration and expressing confidence in margin expansion. The company’s recent performance and future expectations are being closely monitored by investors as Trupanion continues to navigate the pet insurance market.
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