Aging Demographics And Medicare Advantage Will Advance Value Based Care

Key Takeaways

• Growing demand for value-based primary care and favorable industry trends are positioning the company for sustained patient growth and market share gains.
  
• Investments in analytics, contract improvements, and operational enhancements are expected to drive higher profitability and durable margin expansion over time.
  
• Persistent losses, execution risk, and revenue concentration challenges threaten profitability, while reduced membership and selective growth could result in ongoing revenue stagnation.

Catalysts

Provides healthcare services for seniors through primary care physicians in the communities of the United States.

• The accelerating growth of the senior population and increasing prevalence of complex, chronic conditions, especially among the 80+ age group, are fueling multi-year demand for agilon health's model focused on comprehensive, value-based primary care for seniors. This demographic shift is expected to materially expand patient volumes and recurring revenues over time.
  
• Widespread transition to value-based care and rapid adoption of Medicare Advantage plans continue to favor agilon health's core business; these industry dynamics position the company to gain market share and drive top-line growth as payers and providers increasingly seek risk-bearing, outcomes-focused partners.
  
• Strategic investments in advanced data analytics, AI-driven platforms, and enhanced burden-of-illness and quality assessment programs are improving the identification and management of high-risk patients, which should contribute to improved risk adjustment, better medical cost control, and higher net margins and earnings beginning in 2026.
  
• Negotiated improvements in contract economics with payer partners-including reduced Part D risk exposure, escalation of quality incentives, and refined supplemental benefit sharing-are expected to support higher profitability and margin recovery in future periods.
  
• Expansion of clinical pathways, successful scaling of chronic disease management programs, and strong PCP and patient retention reinforce agilon health's operational leverage, paving the way for durable earnings growth, enhanced gross margin, and improved operating cash flow as the platform scales.

agilon health Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming agilon health's revenue will grow by 9.9% annually over the next 3 years.
• Analysts are not forecasting that agilon health will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate agilon health's profit margin will increase from -5.6% to the average US Healthcare industry of 5.4% in 3 years.
• If agilon health's profit margin were to converge on the industry average, you could expect earnings to reach $426.5 million (and earnings per share of $1.01) by about August 2028, up from $-329.1 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 2.6x on those 2028 earnings, up from -1.3x today. This future PE is lower than the current PE for the US Healthcare industry at 21.0x.
• Analysts expect the number of shares outstanding to grow by 0.71% 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.

agilon health Future Earnings Per Share Growth

Risks

• Ongoing declines in risk adjustment revenue due to underperformance in identifying and enrolling high-burden patients, as evidenced by 2024 and 2025 results, expose agilon health to persistent revenue misses and unpredictable top-line growth.
  
• Medical margins turned negative year-over-year, driven in part by chronic challenges in managing burden of illness programs and unexpectedly high inpatient and oncology drug (Part B) costs, indicating that cost structures and claims trends could pressure net margins and earnings if not brought under control.
  
• Volatility in payer negotiations, including a high dependence on a few large partners and the need to aggressively renegotiate contract economics for 50% of the membership in 2026, creates revenue concentration risk and could result in further membership attrition or unfavorable terms that compress EBITDA and net income.
  
• Strategic uncertainty due to leadership turmoil-including CEO turnover and lack of permanent executive direction-alongside withdrawing financial guidance and implementing urgent restructuring, signals significant execution risk that could undermine operational efficiency and delay return to profitability.
  
• Reduced Medicare Advantage membership (from 513,000 to 498,000 YoY) and highly selective future growth outlook, including cautious expansion into new practices and markets, may lead to stagnant or contracting covered lives, limiting revenue growth and operating leverage in future periods.

Valuation

• The analysts have a consensus price target of $2.114 for agilon health 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 $5.0, and the most bearish reporting a price target of just $1.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.8 billion, earnings will come to $426.5 million, and it would be trading on a PE ratio of 2.6x, assuming you use a discount rate of 6.8%.
• Given the current share price of $1.05, the analyst price target of $2.11 is 50.3% 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.