Tightening US Healthcare Policies And Gig Shifts Will Dampen Prospects

Key Takeaways

• Policy shifts and workforce trends threaten to shrink Progyny's eligible customer base and dampen long-term growth prospects.
  
• Intensifying competition, regulatory scrutiny, and disruptive technologies pose risks to profitability, client retention, and future demand for services.
  
• Progyny demonstrates strong recurring revenue, successful portfolio expansion, and growing market reach, underpinned by high client retention and improving operational profitability.

Catalysts

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

• As efforts to curb healthcare costs intensify in the U.S., future policy actions could restrict employer funding or insurance coverage for fertility benefits, severely limiting Progyny's customer base and stalling revenue growth.
  
• Continued expansion of the gig economy and shift toward more freelance and contract work may shrink the pool of employees eligible for high-value, employer-sponsored fertility benefits, eventually eroding Progyny's total addressable market and putting long-term earnings at risk.
  
• Intensifying competition from traditional insurance carriers bundling fertility solutions and well-capitalized startups offering cut-rate alternatives threatens to compress Progyny's margins and reduce net profitability over time.
  
• Heightened privacy concerns and increased regulatory scrutiny regarding the collection and handling of sensitive reproductive health data may discourage employer adoption and participant engagement, undermining client retention and dampening future revenue streams.
  
• Advances in reproductive science that dramatically improve natural conception rates or the emergence of inexpensive, disruptive fertility technologies could bypass traditional benefit managers and sharply reduce demand for Progyny's core services, leading to prolonged declines in revenue and operating income.

Progyny Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Progyny compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Progyny's revenue will grow by 8.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.3% today to 5.3% in 3 years time.
• The bearish analysts expect earnings to reach $83.3 million (and earnings per share of $0.84) by about August 2028, up from $53.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 22.4x on those 2028 earnings, down from 36.7x 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 decline by 4.82% 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.

Progyny Future Earnings Per Share Growth

Risks

• Progyny continues to benefit from strong secular demand, as employer interest in women's health and family building solutions remains high and the pipeline for new clients is comparable to the previous year, supporting robust top-line revenue growth.
  
• The company is successfully expanding its product portfolio into adjacent areas such as leave navigation, global services, and pelvic floor therapy, which has driven client adoption and enabled upselling, likely providing material long-term revenue diversification and expansion.
  
• High client retention rates and ongoing upsell activity among existing clients indicate Progyny's solutions are deeply embedded and valued, which supports recurring revenue streams and underpins earnings stability.
  
• Progyny's ability to achieve and maintain gross margin expansion, supported by operational efficiencies and active management of costs, enhances profitability and may drive improvements in net margins over time.
  
• The entry into partnerships, such as with Amazon's Health Benefits Connector, along with continued innovation in platform and service offerings, expands Progyny's distribution reach and market visibility, supporting sustained increases in covered lives and long-term revenue trajectory.

Valuation

• The assumed bearish price target for Progyny is $21.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Progyny's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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 $21.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $83.3 million, and it would be trading on a PE ratio of 22.4x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $22.85, the bearish analyst price target of $21.0 is 8.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.