Oscar Health: Disruptive Insurer Reaches Fair Value

seekingalpha11-20

Oscar Health has achieved profitability in 2024, driven by high growth and improved SG&A expense ratio.The company’s tech-driven model and focus on individual and small group markets provide a ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2484115448?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/153387889/image_153387889.jpg","is_english":true,"pubTime":"2024-11-20 19:35","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2484115448","market":"sg","top_or_hot":-1,"title":"Oscar Health: Disruptive Insurer Reaches Fair Value","media":"seekingalpha","content":"<div>\n<p>Oscar Health has achieved profitability in 2024, driven by high growth and improved SG&A expense ratio.The company’s tech-driven model and focus on individual and small group markets provide a ...</p>\n\n<a href=\"https://seekingalpha.com/article/4738939-oscar-health-disruptive-insurer-reaches-fair-value\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Oscar Health: Disruptive Insurer Reaches Fair Value</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nOscar Health: Disruptive Insurer Reaches Fair Value\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-20 19:35 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4738939-oscar-health-disruptive-insurer-reaches-fair-value><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Oscar Health has achieved profitability in 2024, driven by high growth and improved SG&A expense ratio.The company’s tech-driven model and focus on individual and small group markets provide a ...</p>\n\n<a href=\"https://seekingalpha.com/article/4738939-oscar-health-disruptive-insurer-reaches-fair-value\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4162","symbol_name":"人寿与健康保险","start_time":0,"source_url":"https://seekingalpha.com/article/4738939-oscar-health-disruptive-insurer-reaches-fair-value","article_id":"2484115448","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/153387889/image_153387889.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2484115448","pubTimestamp":1732102501,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Oscar Health has achieved profitability in 2024, driven by high growth and improved SG&A expense ratio.The company’s tech-driven model and focus on individual and small group markets provide a competi","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4162":"人寿与健康保险","OSCR":"Oscar Health, Inc.","BK4551":"寇图资本持仓"},"translate_title":"奥斯卡健康：颠覆性保险公司达到公允价值","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"OSCR":0.9},"content_text":"Oscar Health has achieved profitability in 2024, driven by high growth and improved SG&A expense ratio.The company’s tech-driven model and focus on individual and small group markets provide a competitive edge in the evolving gig economy.Despite political and economic risks, Oscar's strong balance sheet and growth potential in untapped states support a positive outlook.The current stock price reflects the most upside, and OSCR is rated a Hold until a more attractive entry point arises.   aluxum Oscar Health (NYSE:OSCR) is a rising health insurance company, whose shares have seen impressive returns in 2024 alone. OSCR YTD Price History (Seeking Alpha)This largely owes to it achieving profitability for the first time this year. Now it's a question if profits and the growth that made it possible will continue and if the price is right for long-term investors to enjoy that. I do think the growth will continue. Financial History Only a few years as a public company, Oscar only has a limited financial history, but one that shows substantial changes in that time. Author's display of 10K dataThe company has had a meteoric rise, going from a few hundred million in revenue to almost $6B by 2023. Author's display of 10KFor each of these years, however, net income was consistently negative. 2023 marked a reversal in which the loss contracted substantially, providing hope that their model would prove itself. Q3 2024 Form 10QEarlier this year, the company finally reported a quarter with GAAP profits. This has not continued for the recently released Q3 results. These show an operating loss, amid expenses from both medical claims and SG&A expenses. Yet, signs of the earnings growth trend remain, as these account for a smaller GAAP loss than the prior-year quarter. Moreover, as there is seasonality to this business (customers don't tend to adopt health plans evenly across the year), this isn't necessarily a problem. YTD net income also remains positive at $179M, for $0.65 per share (diluted).   Q3 2024 Form 10QThe key here has been in their improving SG&A expense ratio as they scale. While the medical loss ratio is largely a question of risk-related pricing for policies, improvement there is much more slight. Growth leads to profits mostly as it exceeds the SG&A side, bringing the overall combined ratio under 100%.   Q3 2024 Form 10KThis has been made possible by the very high-growth rate of total members, which has now demonstrated the strength of their SG&A operating leverage. Balance Sheet (Q3 2024 Form 10Q)The balance sheet also appears rather healthy. Among cash and short-term/long-term investments, Oscar enjoys about a $3.6B against insurance liabilities and long-term debt of about $2.6B. Tangible book value (an important metric for a financial) stand about $1.16B and $4.71 per share. Business Model I talked about the numbers, so now let's talk about the business under the hood that makes these numbers happen. As I mentioned at the start, Oscar deals in health insurance, not exactly the newest idea for a business. I'll quote their latest 10K (pg. 7), as they put the differentiating factor succinctly: Oscar's business is built upon our focus on member experience and our cloud-native technology platform. We offer health plans in the individual and small group markets, as well as our platform product, +Oscar. Oscar is therefore is a disruptive entrant in the health insurance market, and it utilizes its tech-driven model not only to underwrite with precision (in regards to risk) but to allow for much more personalized plans, giving them an edge among the submarket that makes up individuals and small groups. Q3 2024 Company PresentationThe company believes its advantage comes from consumer-driven demand for much lower healthcare costs and the kinds of savings that tech (particularly generative AI) can create through eliminated waste and better-customized pricing. Moreover, as this company was founded in 2012 and in the aftermath of the Great Recession, it has built its business around these more recent economic trends. Where many legacy health insurance companies are based on large employers whose staff receive plans as compensation in a multi-decade career, Oscar has worked on a model that suits the new economy, one built around gigs and job displacement that have become increasingly normal. Q3 2024 Form 10QAs of Q3, 2024, Oscar has over 1.6M members enrolled in their plans. Future Outlook I believe that the company's current record has proved the validity of their model and that it has a place in this health insurance market. Moreover, as they are now profitable, I believe the risk is substantially less, eliminating the potential for share dilution or brutal loans as a means to raise capital. That said, I don't think the risks are zero, so I will discuss those too after my valuation. Growth of Individual Market As I mentioned before, the new economy is built more around gigs than old-school careers. While this phenomenon came into parlance after the 2008 recession, the COVID pandemic facilitated this. Forbes reported gig workers rising from about 14% of the workforce in 2014 to about 35% by 2020. One might think it is only indicative of what was true in a pandemic (which required a gig's flexibility), but TeamStage reports that gig numbers hold strong at 36% today and the most such workers report satisfaction with their situation. Q4 2024 Form 10QThis is the trend that has given Oscar an edge in an established industry, and there are reasons to think the individual market will enjoy secular growth, namely as it comes to ACA tax credits and potentially other subsidies. This means that capturing more market share isn't strictly necessary for them to enjoy growth. In the Q3 earnings call, CEO Mark Bertolini spoke to that when asked about pricing: There are always a few players in a few markets who chase after share. We don't think that's sustainable. And we believe that the market is going to be a pretty stable market this year. This is reassuring to hear. Their growth and ability to acquire customers derives specifically from the technical advantages of their operating model, and they don't intend to compromise it by hurting their pricing. Q3 2024 Company PresentationIn particular, Oscar believes that in impact of the ICHRA has the ability to triple the ACA TAM in the near future. They don't need to fight for share if the tailwinds are in their favor. Potential in Other States On top of that, Oscar currently only operates in 18 states, and so 32 remain for them to expand, along with these other trends.   Q3 2024 Company PresentationIt is worth noting that they were doing business in 20 states at the end of 2023. Oscar may therefore choose to do exit states, depending on how favorable each state market is, or to delay entering them. As many of their existing areas are among the more populous states, entering all 50 states does not necessarily mean membership would more than double, but it still represents a growth opportunity in addition to what is possible with their current markets. Improved Operating Leverage As I mentioned before, SG&A costs remain more stable than their medical losses, and so revenue growth will continue to create advantages here. Q3 2024 Company PresentationManagement believes the SG&A expense ratio should be down to 16% by 2027. With the 20% revenue CAGR they are guiding until 2027, that should lead to an operating margin of about 5%. Operating income could well be over $700M by that point. Valuation In order to illustrate the potential here, I'm going to take the current TBV per share and illustrate how it could grow over the next decade. I'll use the following assumptions.  $0.55 as baseline EPS 25% earnings CAGR, the first 5 years 5% CAGR the next 5  YTD diluted EPS is currently $0.65. As the business is seasonal with most sales occurring in Q1, I expected FY 2024 diluted EPS to be somewhat less and have adjusted down to $0.55. With the current revenue projections, I believe earnings growth of 25% is very doable. As these only extend a few years, I also have an adjusted a more modest, single-digit figure for further out into the future.   Author's calculationWithout any adjustments for discounting, a decade's earnings, added to today's TBV per share, suggests a future value of just over $20. With recent prices around $18 a share, it's a slight discount, but not one that suggests particularly large returns over time. Risks There are a few things that I can see disrupting the growth story here and catching Oscar off guard, and most of them are political, given the regulatory nature of such a business. OSCR 1M Price History (Seeking Alpha)The market certainly felt this way for about a week, experiencing a sharp drop in response to Donald Trump's victory in the 2024 election. As much of their model depends on some consistency in the ACA market, any attempts to change the law on health in this country could obstruct their current plans. Bertolini was asked about this in the earnings call, and he gave his opinion on it: We believe that both parties have an incentive to ensure that the program continues. We're currently at historic low in the U.S. of below 8% of uninsured. Going the other way would only confound the inflationary impacts that the current race focused around and resulted in the former President Trump being re-elected President...But when you think about what's required in that 63% of our membership in the ACA comes from red states and red states for them that we know of are already standing up their own state-based exchanges that, a, this is a product that's here to stay; and b, there is every intention to make sure that we don't create an inflationary pressure as a result of pulling back subsidies and pushing people out of health care... He does have a point that unwinding the ACA could foil the mandate that got them elected. The level of acceptance in red states also suggests this isn't a top issue for the GOP that it was in 2016. Still, Trump is coming in with a much more eclectic administration this time, and there is plenty of reason to think that very unusual changes are in store. Trump's selection of RFK, Jr. to head the Department of Health and Human Services could have an indirect but important impact, depending on how much the administration cracks down on pharmaceutical companies, which in turn will have an impact of health care costs, whether it's the price of a drug or if certain drugs are even allowed anymore. On a more general note, I do see some vulnerability to recessions with this model that other insurance companies might not have. This owes to the fact that gig workers likely have much more volatile financial situations than someone well-embedded with a large employer. If there is a saving grace, it's that business can be salvaged with a cheaper, personalized insurance product that simply covers less, but otherwise I think a margin of safety is warranted to prepare for a recessionary event. Conclusion Oscar has the right business model for the current shape of the U.S. economy. It just needs to execute on its growth strategy and leverage its technological advantage to price effective and reach customers at low costs.  While I am generally confident in its fundamentals, I think gains over the course of 2024 reflect most of the upside, and until a better price offers itself, I think OSCR is better as a Hold than a Buy.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484115448"}