WASHINGTON (AP) -- Shares of eHealth Inc., which runs a website that markets health insurance to consumers and small businesses, surged Tuesday after an analyst said the health care overhaul law would drive more customers to the company's website.
THE SPARK: Janney Capital Markets analyst Richard Fetyko upgraded eHealth shares to "Buy," ahead of requirements next year that virtually all Americans obtain health insurance. Fetyko writes that the Affordable Care Act should help eHealth grow its member base and sell more insurance policies.
"We also believe that the legislation favors eHealth's web-based distribution platform over the traditional brokers and even direct distribution by insurance carriers, leading to market share gains."
THE BIG PICTURE: The Affordable Care Act is expected to greatly increase the number of insured Americans. Provisions that take effect in 2014 require most Americans to be insured or face a tax penalty. Additionally, starting in 2014, there will be tax credits to help middle-class Americans buy coverage.
About 18 million Americans already buy personal health insurance policies, and the new law is expected to add 15 million to 20 million to that number.
THE ANALYSIS: Fetyko raised his financial estimates for eHealth's 2014 revenue by 16 percent to $198 million. He raised his earnings estimate by 33 percent to 83 cents per share. That compares with the average analyst estimate for earnings per share of 57 cents and revenue of $199.3 million, according to FactSet. The analyst has a $27 price target on the stock.
SHARE ACTION: Shares of Mountain View, Calif.-based eHealth rose $2.86, or 16.2 percent, to $20.54. Over the past year, the stock has traded between $14.34 and $28.17.