Buying eHealth Ahead of Earnings

eHealth (EHTH) is scheduled to report third quarter 2008 results after the market closes on Thursday, October 30. Based on our analysis, we at eChristianInvesting are expecting EHTH to report better than expected results that beat Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $29.5 million and EPS of $.14. This would represent a slight decrease in revenues from last year’s $23.0 million in the same period. The current analyst consensus calls for revenues of $28.8 million and $.12 EPS.

On July 31, the company reduced their full year guidance to revenues of $111.5 – 113.5 million and EPS of $.50 – .57. Investors have expressed concern about the future performance of this business due to 1) reduced consumer spending, and 2) an Obama presidency that makes sweeping changes to the entire healthcare industry.

However, we are of the belief that investor’s concerns are overdone. While the difficult economic climate has certainly had an impact on consumer spending, health insurance is generally not considered a discretionary item. While applications growth may slow, we believe that eHealth will end up benefiting from the economic climate as consumers become more diligent in looking at ways to reduce expenses.

In addition, while we consider it all but certain that Obama will win the election, we do not share the belief that he will be able to make wide-sweeping changes soon after taking office. The failing economy will have to be his main priority. While providing universal healthcare to every American makes great campaign talk, the reality is that it costs money. Money that is currently being used to keep this country out of another Great Depression.

Share Performance

To date, eHealth’s shares have dropped 62%. Meanwhile, the NASDAQ has only fallen 42%. It seems as though Wall Street is already pricing in more negative news.

Valuation

Shares are now trading at 19x consensus 2009 EPS estimates. This is a premium to their peer group, but we believe that eHealth remains one of the truly game-changing players within the internet sector. While it’s possible that the shares may continue to trade lower, we recommend investors buying on the weakness and see this as a great long-term holding.

Recommendation: Buy with a $15 price target.

Disclosure: none