Medicare Engagement And Efficiency Will Drive Future Savings

Key Takeaways

• GoHealth's shift to Medicare engagement enhances consumer relations and boosts operational efficiency, lowering costs and improving margins.
  
• Initiatives like PlanFit Save focus on retention, diversifying revenues and improving earnings stability.
  
• Heavy reliance on Medicare Advantage and potential regulatory changes pose risks to GoHealth's revenue growth and market share, despite past revenue increases.

Catalysts

Operates as a health insurance marketplace and Medicare-focused digital health company in the United States.

• GoHealth expects favorable market dynamics through the first three quarters of 2025, indicating potential revenue growth and profit expansion driven by market conditions and refined operating models. This is anticipated to positively impact revenue and earnings.
  
• The shift to a Medicare engagement company has enhanced consumer relationships and operational efficiency, resulting in lower customer acquisition costs and improved agent productivity. This reduces costs and improves net margins.
  
• The integration of advanced tools and training programs has increased agent productivity, leading to significant year-over-year submission growth. This enhances operational efficiency and impacts earnings positively.
  
• The launch of the PlanFit Save initiative, which focuses on consumer retention instead of just new enrollments, can provide a diversified revenue stream and improve earnings stability.
  
• Reducing operating costs and improving call efficiencies through technology deployment, as exemplified by the successful transformation of e-TeleQuote, aims to lower costs and improve net margins.

GoHealth Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GoHealth's revenue will grow by 6.8% annually over the next 3 years.
• 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 -0.8% to the average US Insurance industry of 10.2% in 3 years.
• If GoHealth's profit margin were to converge on the industry average, you could expect earnings to reach $98.7 million (and earnings per share of $3.8) by about May 2028, up from $-6.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.8x on those 2028 earnings, up from -16.4x today. This future PE is lower than the current PE for the US Insurance industry at 14.1x.
• Analysts expect the number of shares outstanding to grow by 4.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.56%, as per the Simply Wall St company report.

GoHealth Future Earnings Per Share Growth

Risks

• The management highlighted that the 2025 annual enrollment period may feature less favorable market conditions compared to 2024 due to reduced plan exits, which could temper expectations for enrollment and revenue growth. This could impact GoHealth's revenue projections.
  
• The company's approach to estimating lifetime values (LTVs) remains cautious due to potential future uncertainties, suggesting ongoing revenue predictability challenges and possible pressured cash flow if assumptions prove inaccurate.
  
• Despite a notable increase in 2024 revenue and EBITDA, GoHealth still reported a negative cash flow from operations for the full year, which could impact financial flexibility and long-term earnings.
  
• Any regulatory changes by CMS affecting health plan funding, broker commissions, and marketing rules could introduce unpredictability and affect operational costs and net margins.
  
• Heavy reliance on the Medicare Advantage market could limit growth opportunities especially if competitors intensify their efforts in the same market, potentially affecting GoHealth's market share and revenue.

Valuation

• The analysts have a consensus price target of $26.0 for GoHealth 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 $40.0, 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 2028, revenues will be $972.4 million, earnings will come to $98.7 million, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 8.6%.
• Given the current share price of $10.43, the analyst price target of $26.0 is 59.9% 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.