Multiple firms picked up coverage today of the online health insurer eHealth (NASDAQ:EHTH), which went public October 13 at $14 a share and quickly moved into the low 20s. Many of the calls take the view that the stock has moved enough for now; several seem to think the price is too high. Forthwith, some excerpts:
- Steve Halper, Thomas Weisel Partners: We are initiating research coverage of eHealth…with an Underweight investment rating, as the shares’ current valuation, in our view, reflects the company’s strong long-term growth prospects…Our current fair value range for EHTH shares is in the range of $17 to $20.
- William Morrison, JMP Research: There are several long-term secular trends that we expect to fuel eHealth’s growth over the next three to five years including more employers shifting health care costs to their employees, a rising number of self employed workers, federal healthcare policies that reward individuals for buying insurance, and a decline in the number of employers offering medical coverage to retired workers…We are initiating coverage…with a Market Outperform rating and $30 target price.
- Carl McDonald, CIBC World Markets: We are initiating coverage of eHealth…with a Sector Underperformer rating and a $17 price target…We think there are a number of fundamental issues with eHealth’s business model that do not support the stock’s current multiple…eHealth does not have a recurring revenue stream, since the average tenure of members is just 2 years and the revenue on renewals falls by about 50%. eHealth needs to add a greater number of new members each year just to keep revenue flat, making incremental growth more difficult…The company is bringing a tremendous amount of pricing transparency to the individual market, but regulations prevent eHealth from offering any price differentiation. The inability to offer a lower price, despite providing fewer services than traditional agents, will ultimately be a problem…eHealth has a significant revenue concentration, and, as more of the company’s business becomes concentrated in fewer plans, it will give the larger plans leverage to pare distribution costs. Moreover, there is nothing to stop larger plans from forming their own online distribution forum. (Note: This report was released Monday.)
- Justin Post, Merrill Lynch: Following a 62% move from the IPO price of $14, the stock is fairly valued, in our view, at 49x 2008 GAAP EPS and 23x 2008 EBITDA versus 31% expected four-year revenue growth. Rating: Neutral.
- Christine Arnold, Morgan Stanley: eHealth is the clear, dominant player in the large and under-penetrated individual, online broker market. The company offers product and price transparency to consumers, rapid entry and favorable selection in the individual market to carriers, and has achieved profitability with a scalable business model. However, since eHealth is in a relatively early stage of its target market penetration, we await proof that the company can meaningfully grow and sustain membership (and market penetration) before becoming more aggressive supporters of EHTH shares. The shares, in our view, will need to grow into their currently rather lofty valuation. Rating: Equal Weight.
This morning, eHealth shares are down 40 cents at $22.33.
EHTH since IPO: