Investments In BenefitBump And Digital Assets Will Improve Service Offerings And Member Engagement

Key Takeaways

• New partnerships and recent acquisitions are expected to drive revenue growth by expanding service access and enhancing offerings.
  
• Continued investment in digital assets and diverse product expansion could increase utilization and revenue per client, supporting growth despite potential client losses.
  
• Loss of a major client and competitive pricing strategies may impact Progyny's revenue growth and profitability amidst investments in digital solutions and regulatory uncertainties.

Catalysts

A benefits management company, provides fertility, family building, and women’s health benefits solutions in the United States.

• Progyny's new partnerships with health plans, including Cigna, are expected to enhance their market presence and potentially drive revenue growth by expanding access to their services across more clients and covered lives.
  
• The company is investing in integrating recent acquisitions, such as BenefitBump, to enhance their service offerings, which may improve member engagement and ultimately contribute to increased revenue and higher margins.
  
• Progyny is continuing to invest in digital assets and expanding their product offerings into areas such as maternity, postpartum, and menopause, which could result in increased utilization rates and higher revenue per client.
  
• The company has demonstrated a trend of adding at least 1 million new covered lives every selling season, which should support continued growth and help offset the impact of losing a large client, contributing positively to revenue.
  
• With high client retention rates (99%) and a focus on enhancing their solution's member experience, outcomes, and cost control, Progyny aims to strengthen its competitive advantage and improve operating margins over time.

Progyny Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Progyny's revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.7% today to 6.5% in 3 years time.
• Analysts expect earnings to reach $99.8 million (and earnings per share of $1.14) by about April 2028, up from $54.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $125.9 million in earnings, and the most bearish expecting $81.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.8x on those 2028 earnings, down from 34.4x today. This future PE is lower than the current PE for the US Healthcare industry at 22.8x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Progyny Future Earnings Per Share Growth

Risks

• The loss of a large client, which represented 12% of 2024 revenues, poses a risk to revenue growth as replacing this client with new clients may result in lower utilization rates initially. This could impact overall revenue projections.
  
• The variability in member engagement and utilization observed in 2024 could indicate potential instability or unpredictability in future cycles, impacting revenue consistency and potentially affecting earnings.
  
• Increased investments in digital solutions and acquisitions, such as BenefitBump, involve significant capital outlay, which could pressure operating margins and net margins before these investments yield substantial returns.
  
• Potential competitive pricing from late-stage private competitors could put pressure on Progyny’s pricing strategy, potentially affecting its revenue per cycle and overall profitability if they have to lower prices to remain competitive.
  
• There is uncertainty regarding the impact of new governmental policies and executive orders that aim to expand access to IVF. While potentially beneficial, the lack of specific details adds a layer of risk to future revenue projections relating to government contracting opportunities.

Valuation

• The analysts have a consensus price target of $26.75 for Progyny 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 $34.0, and the most bearish reporting a price target of just $23.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $99.8 million, and it would be trading on a PE ratio of 21.8x, assuming you use a discount rate of 6.2%.
• Given the current share price of $21.87, the analyst price target of $26.75 is 18.2% 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.