Progyny: No Issues With Growing Healthily Ahead

Summary

• Progyny is well-positioned to capitalize on the growing demand for fertility solutions.
• PGNY's expansion into the labor union market, estimated at around 100 million lives, significantly increases its growth potential.
• PGNY's partnership with Evernorth also enhances its market strength and appeal.

Catherine Delahaye/DigitalVision via Getty Images

Thesis

Progyny (NASDAQ:PGNY) is a US-based fertility benefits firm. The business provides patients with a benefits package that includes counseling from a Patient Care Advocate as well as links to a group of fertility specialists. PGNY's operations are geared toward lowering the overall cost of healthcare for businesses. The market for managing fertility benefits is growing quickly due to societal and cultural shifts, such as the postponement of having children and the rise in acceptance of alternative methods of having children. PGNY's approach results in better health outcomes and lower costs for employers. I maintain my buy rating on PGNY stock given the enlarged TAM and resilient demand outlook.

Demand continues to be strong

The demand for fertility solutions has strong dynamics that work in PGNY's favor. Infertility affects 1 in 6 people worldwide, according to a study cited by WHO (note that this is up from the 1 in 8 figure given in PGNY S-1). While this figure is worldwide, if we assume developed countries are more sophisticated with such solutions, then, the US (which PGNY mainly operates in) should see a similar uptick. The simple math suggests that the TAM has increased by ~30%. In my opinion, PGNY is in a great position to take advantage of this growing market because it differentiates itself from the competition by reducing patients' out-of-pocket expenses while simultaneously enhancing their chances of having a successful pregnancy.

In addition, I think PGNY is still on track to meet its annual targets for new client acquisition and expansion of covered lives in the near future. The management is confident in its ability to outperform its FY22 results, and they have stated their intention to increase the number of new customers and the total number of covered lives by more than 1.2 million in FY23 (source: 1Q23 earnings call). Fair enough, the presence of a busy pipeline and a large number of early commitments supports this optimism. Viewed together, I see a very strong growth potential for PGNY in the coming years.

TAM expansion

With PGNY's foray into the labor union market, where the TAM is estimated at around 100 million lives—a substantial increase from the current 5.4 million lives—I see a lot more optimism for future growth (source: 1Q23 earnings call). This literally means PGNY mature earnings can effectively ~20x at the same penetration rate. The best part is that the labor union market supports the PGNY flywheel effect for fertility solutions. In my opinion, it is likely that if one union adopts the fertility benefit, the other unions will adopt it as well (since one union has already "validated" that it is ok). Importantly, as management pointed out, the unit economics will be very similar to self-insured employers, with utilization varying based on the industry of the union. As such, margins will not be diluted.

Evernorth partnership positive

PGNY has been selected as the preferred solution in fertility and family building by Evernorth’s Family Path suite of services. The partnership between PGNY and Evernorth is an impressive demonstration of the company's market strength. Firstly, I expect PGNY's sales to be boosted by their partnership with Evernorth, which also makes it easier to interact with potential customers. Secondly, the involvement of a major carrier like Evernorth also bolsters PGNY's standing in the industry, as it shows that the company is being viewed as a potential partner rather than a threat. This support from a major player in the industry is a major vote of confidence in PGNY, and it highlights the value proposition and market appeal of the company.

Valuation

I believe the upside is still appealing even after the recent rally. There is big changes to my growth assumptions from the previous model as I expect PGNY to continue growing at a rapid pace, albeit slower than historical rates given the larger revenue base (not that PGNY is still adding ~$300+million in revenues). My multiple assumption remains at 2.8x forward revenue, but I do see a potential for higher multiples if the investment sentiment turns favourable for high growth stocks.

Author's model

Risks

It's possible that the PGNY structure will make some businesses wary of giving up the stability of a predetermined budget for benefits. Employers who already offer IVF benefits in the form of fixed dollar amounts may be hesitant to make the switch to PGNY's innovative approach due to budgetary concerns, while companies that have never provided such coverage before may find it easier to adopt PGNY's approach.

Conclusion

PGNY has positioned itself as a leading fertility benefits firm, capitalizing on the growing demand for fertility solutions. With an enlarged TAM and a resilient demand outlook, I believe PGNY has a strong growth potential in the coming years. The recent foray into the labor union market further expands the TAM, potentially multiplying PGNY's mature earnings. Overall, I maintain my buy rating on PGNY based on its growth prospects and strategic positioning.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[rational_1998]

@Heinsite Capital @Finding Your Retirement This looks like a great story. So my question is : why has the stock price done little NET gain in a year? What's missing that we do not see steady appreciation?

[Finding Your Retirement]

@rational_1998 it's at 91x pe and 3x p/s. It's way overvalued and will only start moving when they get that earnings up or the market decides it's the hot thing of the year. If you held amazon, goog, or tesla in the past you'll know the feeling. It just sits there and do nothing. Many people forget amazon sat at 1000 (presplit) for a long time before it went to 2k.

My investing style is to park my money on trends and wait for the market. Each year women are delaying childhood. Each year PGNY collects more reoccurring revenue. It's like the AI boom. AI stocks been around for over a decade, only the market decided it's the hot new thing this year

[Finding Your Retirement]

my bet is on PGNY, 45% of women 22-45 will be single and childless in 2030. Recent stats show the usage of antidepressants among women 25-49 up to 25%. And the US is worried about a labor shortage and the "greying of america." American men are becoming passport bros. Even sperm banks are in short supply.

Simply, i believe egg freezing and invitro will be included as part of all medical covered procedures. It has to be. There is no other option