- Independence Holding reported earnings.
- These included a drop in revenues and improved earnings.
- Both are consistent with the previous thesis and the improvement in earnings is likely to continue, however the drop in revenues might also stay with us for two quarters.
When I first wrote about Independence Holding (NYSE:IHC) I explained the basic thesis in the name. Independence Holding had a long past on medical stop-loss insurance, and medical stop-stop loss insurance was being favored by Obamacare. Independence Holding was trading at sensible though not incredibly cheap earnings multiples as well as a low price/book and was abandoning a couple of lines of business which ought to, over time, improve profitability on top of the medical stop-loss trend.
With Independence Holding having reported earnings 2 times since my article, I can say that the thesis is still on track. Independence Holding is exhibiting growth on its medical stop-loss business and direct business in general, and profitability is now slowly rising over 2013. Profitability is also expected to continue to exceed 2013 in the next couple of quarters.
However, while on these grounds the thesis remains sound, there's something which keeps Independence Holding from attaining a growth multiple on the now-improving earnings. That something is the drop in revenues brought about by the dropping of unprofitable business as well as intermediated lines. The phenomenon, which hasn't derailed the earnings thesis, is likely to stay put until the end of the year, where revenues should start growing again as IHC laps the comparables. It thus remains hard, and will remain hard for a while, for IHC to attain growth multiples in spite of the profitability improvement. But, again, the thesis towards improved profitability and IHC being a medical stop-loss beneficiary remains in place and might at some point be recognized by the market.