Medicare Enrollment Tailwinds And AI Efficiencies Will Drive Strong Future Earnings Power

Catalysts

About GoHealth

GoHealth operates a technology enabled Medicare marketplace that connects beneficiaries with plans and ancillary products that best fit their needs.

What are the underlying business or industry changes driving this perspective?

• Growing Medicare enrollment and enduring consumer reliance on Medicare Advantage guidance position GoHealth's data driven brokerage platform to capture higher quality share as plan designs and government reimbursement stabilize. This supports a return to revenue growth and improved earnings power.
• Health plans are explicitly shifting economics toward retention, stable member profiles and special needs plans, areas where GoHealth already has differentiated capabilities and relationships. This should translate into richer unit economics, stronger net margins and more durable cash flows.
• GoHealth Protect and other guaranteed acceptance offerings provide a complementary product suite with different seasonal peaks than Medicare Advantage. This creates a more balanced revenue mix, smoother cash generation and the potential for higher year round utilization of the existing agent and technology base.
• Ongoing investment in AI, automation and proprietary tools like PlanFit and PlanGPT is compressing agent ramp times and standardizing high quality service. This should lower operating costs per policy, enhance member retention and expand margins as volumes rebuild.
• A fragmented broker landscape, coupled with GoHealth's strengthened balance sheet, lender support and refreshed Board, creates an opportunity to lead consolidation, capture scale efficiencies, reduce duplicative fixed costs and lift both earnings and free cash flow over the long term.

Assumptions

This narrative explores a more optimistic perspective on GoHealth compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming GoHealth's revenue will decrease by 2.5% annually over the next 3 years.
• The bullish analysts are not forecasting that GoHealth will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate GoHealth's profit margin will increase from -27.5% to the average US Insurance industry of 11.3% in 3 years.
• If GoHealth's profit margin were to converge on the industry average, you could expect earnings to reach $77.4 million (and earnings per share of $3.93) by about December 2028, up from $-202.9 million today.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 3.6x on those 2028 earnings, up from -0.2x today. This future PE is lower than the current PE for the US Insurance industry at 13.5x.
• The bullish analysts expect the number of shares outstanding to grow 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 12.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Health plans are structurally de-emphasizing broad new Medicare Advantage enrollment in favor of retention, tighter plan economics, and non-commissionable or suppressed products. This could cap GoHealth's ability to reaccelerate MA volumes over multiple AEP cycles and limit long-term revenue growth and lifetime value per policy, ultimately constraining earnings power and cash generation.
• Persistent mid-cycle changes in plan compensation, eligibility rules, and product suppressions by carriers introduce structural uncertainty into GoHealth's LTV-based revenue model. This increases the risk that upfront customer acquisition costs are not recovered through year one renewals and puts sustained pressure on net margins and operating cash flow.
• GoHealth's current strategy to pull back on new MA volume to preserve cash and focus on retention may leave it under-scaled if the market rebounds faster than expected. In that scenario, re-ramping agents and marketing could be more expensive and slower than competitors, resulting in lost share, subscale fixed cost absorption, and weaker long-term earnings.
• The company is relying on a relatively thin liquidity cushion and a super priority loan facility to navigate a potentially multi-year period of muted MA growth. Any prolonged weakness in cash generation or covenant pressure could restrict investment in technology and consolidation, limiting structural margin improvement and depressing future earnings.
• Industry consolidation in a fragmented broker landscape may not materialize on favorable terms for GoHealth or could require substantial upfront integration and restructuring costs. If synergies, back book cash flows, or retention benefits fail to materialize as expected, the result could be weaker net margins, elevated leverage, and lower long-term free cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for GoHealth is $10.0, which represents up to two standard deviations above the consensus price target of $7.7. This valuation is based on what can be assumed as the expectations of GoHealth's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.0, and the most bearish reporting a price target of just $4.5.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $684.4 million, earnings will come to $77.4 million, and it would be trading on a PE ratio of 3.6x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of $3.0, the analyst price target of $10.0 is 70.0% 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.