Digital Health And Automation Will Support Medicare Expansion

Key Takeaways

• Proprietary technology and automation reduce costs, boost scalability, and support sustained margin and earnings growth alongside durable clinical and operational advantages.
  
• Demographic trends and geographic expansion fuel long-term membership and revenue growth, while industry-leading performance strengthens competitive positioning and future profitability.
  
• Regulatory pressures, rising competition, and increased scrutiny on Medicare Advantage benefits threaten Alignment's revenue growth, profitability, and ability to expand margins amidst higher operating costs.

Catalysts

Operates a consumer-centric healthcare platform for seniors in the United States.

• Alignment's robust, technology-enabled care model and investments in administrative automation, workflow standardization, and digital health platforms position the company to significantly lower SG&A expenses and improve scalability, likely powering both margin expansion and earnings growth over the next several years.
  
• Ongoing expansion into existing counties and new states-combined with low market penetration and favorable demographic trends from a rapidly aging population-create a long-term runway for outsized membership and revenue growth as the Medicare-eligible population swells.
  
• Effective partnerships with providers, strong clinical engagement, and real-time data analytics are reducing inpatient admissions and medical costs, supporting lower medical benefit ratios (MBR) and paving the way for durable net margin improvements even as risk models and reimbursement tighten.
  
• Industry-leading Star Ratings across 100% of member plans for the 2026 payment year translate into higher reimbursement rates and enhanced member retention, directly benefiting revenue per member and strengthening the company's competitive position in a consolidating market.
  
• Alignment's ability to consistently outperform guidance, maintain profitable growth amid regulatory changes, and leverage its proprietary technology for better member outcomes is building credibility and visibility for future free cash flow generation and earnings leverage, driving potential upside if current valuation fails to reflect these catalysts.

Alignment Healthcare Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alignment Healthcare's revenue will grow by 26.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.5% today to 1.9% in 3 years time.
• Analysts expect earnings to reach $125.3 million (and earnings per share of $0.59) by about August 2028, up from $-51.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $184.4 million in earnings, and the most bearish expecting $48.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.2x on those 2028 earnings, up from -53.9x today. This future PE is greater than the current PE for the US Healthcare industry at 20.0x.
• Analysts expect the number of shares outstanding to grow by 3.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Alignment Healthcare Future Earnings Per Share Growth

Risks

• Potential reductions in Medicare Advantage reimbursement rates and heightened regulatory scrutiny from CMS, as discussed regarding star ratings and the evolving Medicare landscape, could limit Alignment's ability to expand margins and pressure future revenue streams, especially amid "tighter stars and the phasing of V28."
  
• The overall trend toward lower premium growth and increased requirements for documented supplemental benefit effectiveness (e.g., scrutiny around whether supplemental benefits yield health improvements) may lead to policy changes that restrict benefit enhancements and curb member growth, negatively impacting top-line revenue.
  
• Escalating competition in Medicare Advantage-both from large incumbents (who could recover share in future years) and newer insurtechs-will likely make member acquisition more expensive and challenge Alignment's ability to sustain its rapid 20%+ membership growth targets, threatening long-term revenue and margin expansion.
  
• Sustained investments in technology, automation, and expansion into new markets require significant upfront capital, and given observed seasonality, member mix changes, and cost fluctuations (particularly rising Part D drug costs and healthcare labor expenses), there is a risk of persistent net losses or margin compression, potentially undermining earnings growth.
  
• Increased policy discussions regarding the cost-effectiveness of Medicare Advantage, industry-wide audits, and debates about whether MA delivers net taxpayer savings (highlighted in the call), could result in adverse changes to federal funding or reimbursement formulas that reduce the profitability and revenue potential of Alignment's business model.

Valuation

• The analysts have a consensus price target of $18.9 for Alignment Healthcare based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $23.0, and the most bearish reporting a price target of just $13.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.8 billion, earnings will come to $125.3 million, and it would be trading on a PE ratio of 40.2x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $13.86, the analyst price target of $18.9 is 26.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.