Shares of Clover Health Investments, Corp. CLOV gained after the company posted second-quarter 2021 earnings results, which cheered investors with strong top-line growth.
Despite suffering an operating loss of 45 cents per share, wider than the Zacks Consensus Estimate of 17 cents, the stock was up 10.8% in the last trading day. Investors were pleased with the skyrocketing revenue growth of 140% year over year to $412.5 million. 47% revenues were generated by Medicare Advantage premiums while the rest 53% came from Direct Contracting revenues.
Number of lives covered by the company also soared 126.3%. This was too split between Medicare Advantage and Direct Contracting.
Normalized Medicare Advantage Medical Care Ratio (MCR), which excludes the estimated net effect of COVID-19, was 97.0%, 50 basis points better than the year-ago quarter’s level.
Management continues to believe that there is a long-term opportunity to improve its Normalized MA MCR, driven by potential improvements in internal processes. These include process changes in Utilization Management, delay in recognizing recoveries and higher Star ratings.
Upbeat 2021 Guidance
The company’s guidance cheered investors with revenues expected in the range of $1.4-$1.5 billion. The top line comprises MA revenues of $760-$790 million and Medicare Direct Contracting revenues of $650-$700 million.
Medicare Advantage membership is expected in the band of 68,000-70,000 by Dec 31, 2021, indicating a growth rate of 17- 21% from the 2020-end level. Normalized adjusted EBITDA loss is expected in the range of $250-$210 million.
Clover Health is a tech-enabled insurance start-up, which went public in January this year via a SPAC merger valued at $3.7 billion. The stock has been very volatile after it started trading ever since. The attention of Redditors took the stock to a high of $28 in June, which is now down almost 70%after the initial frenzy fizzled out .
The company sells MA plans, targeting an attractive market, which is set to grow on the expanding baby boomers’ population. It is a new entrant in the MA markets, which are highly competitive. Established players like UnitedHealth Group Inc. UNH, Humana Inc. HUM, Cigna Corp. CI, Anthem and the Aetna unit of CVS Health (CVS) control most of the MA business.
Nevertheless, Clover Health’s data-driven and AI-enabled software sets it apart from the rest in the industry. Via its technology, it identifies members at maximum risk. This data is utilized in finding solutions to lower their risk of adverse health events. Clover Health took another step in its journey to improve every life with the launch of Direct Contracting recently.
Clover Health carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
With massive volatility attached to its share price movement due to Redditor’s activity, it is advisable to stay away from the stock now. Year to date, the stock has plunged 50% comapred with its industry's decline of 29.5%.
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