Aging And Digital Trends Will Fuel Medicare Demand Amid Hurdles

Key Takeaways

• Proprietary technology and ongoing automation could significantly boost margins and long-term profitability, with analysts underestimating their compounding impacts on costs and scalability.
  
• Expansion into pharmacy, telehealth, and patient management aims to diversify revenue, increase recurring high-margin streams, and accelerate growth in a growing senior health market.
  
• Overextension into lower-margin sectors and rising costs threaten profitability, while channel disruption and regulatory volatility undermine revenue stability and long-term earnings visibility.

Catalysts

Operates a technology-enabled, direct-to-consumer distribution and engagement platform that sells insurance policies and healthcare services in the United States.

• Analyst consensus sees SelectRx and Healthcare Services as growth drivers, but the margin expansion from operational leverage and proprietary technology could deliver EBITDA margins far above 20 percent as scale accelerates, creating significant upside for earnings and free cash flow.
  
• While analysts broadly agree agent productivity and tech investments have improved net margins, they may be underestimating the compounding impact of continual AI and automation advancements, which can compress customer acquisition costs even further and structurally lift both margins and long-term profitability.
  
• The aging demographics in the U.S., combined with rising healthcare complexity, position SelectQuote as a frontrunner to capture an outsized share of a rapidly expanding Medicare and senior health market, potentially driving sustained double-digit revenue and customer growth for many years.
  
• SelectQuote's ongoing expansion into adjacent verticals such as pharmacy services, telemedicine, and patient management has the potential to fundamentally transform its revenue mix into more diversified, recurring, and high-margin streams, supporting higher multiples and creating long-term EPS acceleration.
  
• Accelerating digital adoption and the increasing comfort with online insurance transactions among older Americans could enable SelectQuote's data-rich, tech-enabled platform to win an outsized portion of direct-to-consumer insurance purchases, dramatically expanding its market share and enhancing both revenue and EBITDA growth trajectories.

SelectQuote Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on SelectQuote compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming SelectQuote's revenue will grow by 10.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 1.6% today to 1.2% in 3 years time.
• The bullish analysts expect earnings to reach $25.4 million (and earnings per share of $-0.06) by about August 2028, up from $25.0 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 bullish analyst cohort, the company would need to trade at a PE ratio of 60.6x on those 2028 earnings, up from 17.3x today. This future PE is greater than the current PE for the US Insurance industry at 14.7x.
• Analysts expect the number of shares outstanding to grow by 0.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.78%, as per the Simply Wall St company report.

SelectQuote Future Earnings Per Share Growth

Risks

• Over-diversification beyond the core Medicare Advantage business into lower-margin, riskier segments such as healthcare solutions and life insurance is highlighted throughout the discussion, and the company even states that a greater share of growth is coming from areas with thinner margins, which could significantly dilute overall profitability and reduce future net margins.
  
• The company acknowledges a planned flattening in Senior Medicare Advantage policy volumes and projects only modest margin growth in Healthcare Services, reflecting industry-wide volatility and secular headwinds, which can reduce overall revenue growth and earnings visibility in the coming years.
  
• Intensifying customer acquisition cost (CAC) inflation is evident from the company's constant emphasis on digital and paid advertising efficiency, but even with technology investments, growing dependence on expensive channels puts persistent pressure on gross margins and limits sustainable earnings expansion.
  
• Industry dynamics of direct-to-consumer insurance carriers and large technology firms bypassing aggregators and intermediaries are flagged by secular trends, and SelectQuote's heavy focus on intermediary roles and referral commissions could face structural revenue decline and squeezed commission rates over time.
  
• The text and management highlight external market challenges such as plan disruptions, policy volatility, and regulatory flux in Medicare Advantage, which, when combined with rising lapse rates and declining policy persistency, reduce recurring commission revenue and make long-term revenue and cash flow streams less predictable.

Valuation

• The assumed bullish price target for SelectQuote is $7.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of SelectQuote'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 $7.0, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $25.4 million, and it would be trading on a PE ratio of 60.6x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $2.51, the bullish analyst price target of $7.0 is 64.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.