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Oscar Health stock target held, Neutral rating maintained after investor day

EditorNatashya Angelica
Published 06/10/2024, 12:54 PM

On Monday, Goldman Sachs maintained a Neutral rating on Oscar Health Inc (NYSE:OSCR) with a steady stock price target of $21.00. Oscar Health recently held its 2024 Investor Day, where the company set ambitious targets for 2027, including approximately 20% annual revenue growth, a 5% operating margin, and earnings per share (EPS) of $2.25 or more. These goals surpass the firm's current estimates and the general consensus.

Oscar Health's long-term outlook includes a target medical loss ratio (MLR) of 80%, which is slightly higher than its peers who are in the high-70% range. The company believes this will help it to increase its market share. Moreover, while Oscar Health's operating margin goal of about 5% is on the lower end compared to its peers, the management sees potential for further operating leverage.

The company's plans do not currently include capital deployment, despite expectations of having excess capital that could be used for growth investments or share buybacks. Oscar Health has partially mitigated the risks related to the potential expiration of enhanced advance premium tax credits (eAPTCs) at the end of 2025, projecting an 18% member loss, which is more optimistic than the Congressional Budget Office's (CBO) projections of a 25-30% loss.

Furthermore, the adoption rate of Individual Coverage Health Reimbursement Arrangements (ICHRA) remains uncertain. Oscar Health anticipates that ICHRA will grow to about 3 million lives by 2027, contributing significantly to top-line growth.

Despite being $40 million ahead of the year-to-date plan, the company decided not to adjust its 2024 guidance. This cautious stance is due to the potential for unfavorable partial-year risk adjustments stemming from stronger than expected Special Enrollment Period (SEP) member growth, which would not affect the 2025 outlook.

In conclusion, while Oscar Health has presented a growth profile that differentiates it from its competitors, Goldman Sachs suggests that the current share price already reflects this growth when compared to its peers.

In other recent news, Oscar Health Inc. has made significant strides in its financial performance. The health insurance provider reported its first profitable quarter in Q1 2024, with total revenue reaching $2.1 billion, marking a 46% increase from the same period last year. The company also reported a net income of $178 million, a significant turnaround from previous figures.

BofA Securities has maintained a Neutral stance on Oscar Health, citing the company's strategy to achieve target margins. The firm has adjusted its EPS estimates for 2027 from $1.00 to $1.30, reflecting a more conservative outlook on Oscar Health's market share gains. BofA Securities also revised its stance on Oscar Health, downgrading the stock from Buy to Neutral due to potential subsidy concerns.

On another note, BofA Securities raised Oscar Health's share price target from $22 to $25, maintaining a Buy rating, based on increased confidence in the company's market stability. These recent developments reflect a dynamic landscape for Oscar Health, with notable financial results, analyst revisions, and membership growth.

InvestingPro Insights

Oscar Health Inc (NYSE:OSCR) has been a subject of interest for investors, especially in light of its recent Investor Day announcements. According to real-time data from InvestingPro, Oscar Health boasts a market capitalization of approximately $4.8 billion, reflecting significant investor interest in the company's growth potential. The data also reveals a substantial revenue growth rate of 45.77% over the last twelve months as of Q1 2024, indicating the company's strong top-line performance.

While Oscar Health is trading at a high Price/Book multiple of 4.65, signaling a premium market valuation, it's important to consider the context provided by two key InvestingPro Tips. Firstly, analysts are optimistic about the company's future, expecting net income to grow this year. This aligns with the company's ambitious targets for 2027, suggesting that the anticipated growth is being recognized by market experts.

Secondly, despite suffering from weak gross profit margins, with a margin of 21.87%, the firm has demonstrated a strong return over the last three months, with a price total return of 32.06%, and an even more impressive six-month price total return of 139.7%.

For investors seeking further insights and analysis, there are additional InvestingPro Tips available that delve deeper into Oscar Health's financials and market performance. Interested readers can access these valuable tips and take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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