Expanding Market Reach And Enhancing Services Spur Optimistic Revenue And Profit Forecasts

Key Takeaways

• Anticipated decrease in ART cycle utilizations may negatively affect revenue due to lower fertility treatment rates.
  
• Expansion and new services like menopause and maternity support alongside acquisitions like Apryl signal potential for diversified revenue growth and international presence.
  
• Adjusted revenue guidance and deviations in ART cycles and covered lives reveal risks to growth and financial stability due to market and consumer behavior unpredictability.

Catalysts

A benefits management company, specializes in fertility and family building benefits solutions in the United States.

• The expectation of lower average ART cycles per female utilizer in the second half of the year, which is anticipated to impact revenue negatively due to a reduction in the utilization rate of fertility treatments.
  
• Adjustments in revenue guidance due to certain clients reporting lower covered lives, which could potentially impact top-line growth as a result of a decrease in the overall number of individuals covered under Progyny's fertility benefits plan.
  
• The ongoing expansion into new markets and the acquisition of new clients, as evidenced by the commitment trends that are pacing ahead of the previous year, which could drive future revenue growth as Progyny continues to penetrate untapped market segments.
  
• Investments in enhancing the service offerings, such as the introduction of new products for menopause, maternity, and postpartum support, alongside the high take rate on Progyny Rx, indicating potential for increased revenue per member and diversification of revenue streams.
  
• Development of additional channel partner relationships and the acquisition of Apryl, a Berlin-based fertility benefits platform, which could lead to operating efficiencies, broader market reach, and increased international presence, positively impacting future earnings.

Assumptions

• Analysts are assuming Progyny's revenue will grow by 9.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.5% today to 7.7% in 3 years time.
• Analysts expect earnings to reach $114.7 million (and earnings per share of $1.2) by about October 2027, up from $62.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.1x on those 2027 earnings, down from 23.3x today. This future PE is lower than the current PE for the US Healthcare industry at 25.1x.
• Analysts expect the number of shares outstanding to decline by 5.38% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 5.8%, as per the Simply Wall St company report.

Risks

• Given the adjustment of revenue guidance lower by approximately 5% due to second half expectations unfolding differently, risks to the expected growth rate may include unforeseen changes in market dynamics or consumer behavior affecting revenue.
  
• A noted deviation from historical patterns in ART cycles per female utilizer leading to a lowering of revenue expectations by approximately 7% per utilizing member could imply risks to net margins if this trend does not reverse or further deviates.
  
• Adjustments in forecast to reflect a reduction in covered lives by about 100,000 could indicate potential risks to revenue growth, particularly if the trend in client workforce reductions outweighs growth from other clients.
  
• Stated variability in business, especially in a model driven by utilization in an area like fertility care where timing and pursuit of care are deeply personal, could lead to unpredictability in earnings and affect financial stability.
  
• The commentary on lower-than-expected ART cycles per utilizer and its unknown duration or cause suggests a risk in accurately forecasting future revenues and managing operational costs, potentially impacting earnings.

Valuation

• The analysts have a consensus price target of $24.38 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 $31.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.5 billion, earnings will come to $114.7 million, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 5.8%.
• Given the current share price of $16.18, the analyst's price target of $24.38 is 33.6% 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.