Bank of America sees recent reductions in membership growth targets for Medicare Advantage and direct contracting as lowering visibility
Shares of Clover Health (CLOV) are under pressure on Thursday after Bank of America analyst Kevin Fischbeck downgraded the stock to Underperform, a sell equivalent rating, saying valuation is no longer supported by fundamentals. The analyst noted that following the 100% rally in the past week, the shares are now trading at a 70% premium to Alignment Healthcare (ALHC), which he views as its closest comparison, despite what he sees as a lower near-term margin trajectory. Clover Health was one the stocks trading higher earlier this week after Reddit's WallStreetBets mentioned it as a potential short squeeze target.
SELL CLOVER HEALTH: Bank of America analyst Kevin Fischbeck downgraded Clover Health to Underperform from Neutral with an unchanged price target of $10. Following the 100% rally in the past week, the shares are now trading at a 70% premium to Alignment Healthcare, its closest comp, despite a similar growth profile and lower near-term margin trajectory, Fischbeck told investors in a research note. The analyst continues to believe the Clover Assistant "provides value and helps reduce costs," but says the company's current growth trajectory does not support the valuation.
Further, recent reductions in its membership growth targets for Medicare Advantage and direct contracting lower visibility, he contended. The analyst noted that with fourth quarter results, the company cut its Medicare Advantage membership outlook for 2021, citing a slow pivot to the electronic sales channel and drop in in-person broker sales during COVID. Previously, the company appeared confident in its direct contracting membership outlook, but then with first quarter results, the company also cut its DC membership outlook - reaffirming it would have access to 200k members, but likely would only be able to sign up 70K-100k, Fischbeck added. To some degree, he thinks falling short on membership in a new government program is "completely understandable" given the number of moving pieces, but doing so after lowering the Medicare Advantage membership guidance leaves him with low visibility into the outlook.
MEME STOCKS: Shares of Clover Health and Wendy's (WEN) soared on Tuesday after Reddit's WallStreetBets mentioned both companies as potential short squeeze targets. Short interest in Clover has been climbing this year to about 42% of the float with a short exposure of over $430M, Bloomberg noted, citing data from S3 Partners.
PRICE ACTION: In Thursday morning trading, shares of Clover Health have dropped over 12% to $14.85.