I Will Capitalize On P&C Insurance And Medicare Advantage Opportunities

Key Takeaways

• Strategic investments in data science and business expansion aim to enhance efficiencies, supporting net margin improvements through better cost management.
  
• Capitalizing on attractive trends and execution capabilities positions MediaAlpha for market outgrowth, driving revenue growth and net margin improvement.
  
• MediaAlpha faces challenges in the health insurance vertical with potential legal liabilities and revenue risks, reliant on execution in volatile sectors like Medicare Advantage.

Catalysts

Through its subsidiaries, operates an insurance customer acquisition platform in the United States.

• MediaAlpha expects sustained growth in its P&C insurance vertical, driven by improved financial results for carriers and increased competition for market share. This is likely to positively impact future revenue and earnings.
  
• The Medicare Advantage market, a significant long-term growth opportunity in MediaAlpha's health insurance vertical, is expected to expand as it is a large industry at an early stage of online advertising adoption. This could result in increased revenues as the online advertising adoption improves.
  
• MediaAlpha's intention to capitalize on attractive secular trends and leverage strong execution capabilities positions it to outgrow the market, enhancing overall revenue growth and supporting net margin improvement.
  
• Investments in strategic areas such as data science and agent business expansion are expected to drive greater efficiencies, contributing to increased net margins through cost management and improving earnings.
  
• The potential resolution of the FTC matter, which has been accounted for in their financial guidance, could lead to a more favorable legal expense environment, positively affecting net margins and earnings stability in the future.

MediaAlpha Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MediaAlpha's revenue will grow by 24.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.4% today to 4.3% in 3 years time.
• Analysts expect earnings to reach $56.5 million (and earnings per share of $1.03) by about February 2028, up from $9.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $98.0 million in earnings, and the most bearish expecting $44 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.4x on those 2028 earnings, down from 65.3x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 21.8x.
• Analysts expect the number of shares outstanding to grow by 6.81% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.77%, as per the Simply Wall St company report.

MediaAlpha Future Earnings Per Share Growth

Risks

• MediaAlpha is facing ongoing headwinds in its health insurance vertical, specifically in the Medicare Advantage market and under-65 demand, which could affect transaction value and revenue in the near term.
  
• The Federal Trade Commission's complaint and settlement discussions regarding MediaAlpha's under-65 health insurance business could lead to financial liabilities or legal expenses, impacting net margins and earnings.
  
• Predicted declines in the transaction value of the health vertical in Q1, particularly within the Medicare Advantage and under-65 sectors, signify potential risks to future revenue growth.
  
• The company's growth heavily relies on secular trends and execution within specific verticals, such as P&C and Medicare Advantage, which could be vulnerable to industry changes that impact revenue and market share.
  
• Although the company has made significant progress in deleveraging, any shift in marketplace competition or adverse financial outcomes could affect cash flow conversion and net earnings.

Valuation

• The analysts have a consensus price target of $20.857 for MediaAlpha 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 $27.0, and the most bearish reporting a price target of just $13.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $56.5 million, and it would be trading on a PE ratio of 37.4x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $11.41, the analyst price target of $20.86 is 45.3% 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.