Clover Health Rebases Investor Expectations For 2023 And Appoints New CEO For Medicare Advantage

Healthcare insurance services provider Clover Health (US:CLOV) traded 3.6% higher on Tuesday after the company provided a business update to investors which included some financial guidance for 2023 and the appointment of a new CEO for the Medicare Advantage segment.

Following the news, CLOV has risen 17 ranks in popularity with retail investors and is currently the 67th most held security. The average position size per retail investor is $4.7K.

Clover provides Medicare Advantage insurance plans and operates as a direct contracting entity with the U.S. government and utilizes its in-house developed AI software called ‘Clover Assistant’. Finpedia provides more in-depth analysis of the business here.

The business update was provided by incoming CEO Andrew Toy who transitioned into the leadership role at the start of January as Co-Founder Vivek Garipalli transitioned to the role of Chairman.

Toy commented stating “We expect to build upon our positive momentum from 2022 to deliver continued improvement in our financial performance across both our Insurance and Non-Insurance lines”

The company told investors that in the most recent Advantage Annual Enrollment Period, Clover focused on pricing Insurance plans with profitability in mind as a priority as opposed to growth.

As a result of the pricing focus, Clover expects to start 2023 with flat insurance enrollment numbers when compared to the beginning of 2022.

The guidance:

For the full-year, Clover Health expects to generate $1.15 to $1.20 billion of Insurance revenues with a medical cost ratio of 89-91% for the segment. The guidance represents marginal growth compared to the FY22 guidance range of $1.0 to $1.1 billion and fell short of analyst forecasts of around $1.25 billion for the segment.

In the Non-Insurance segment of the business, Clover expects sales to decline to between $750 to $800 million with a medical cost ratio of 98-100%. The midpoint of the new guidance represents an expected decline of -74% when compared to the FY22 guidance of $2.2 to $2.3 billion in sales for the segment. The 2023 guidance remained below market expectations of around $870 million.

While the total guidance implies revenues will decline by about 30% over the year, it rebases investor expectations to a new baseline and allows incoming CEO Andrew Toy to focus on bringing the business into profitability.

The groups CFO Scott Leffler highlighted that in 2023, Clover will continue “to prioritize operating efficiencies to reduce adjusted SG&A and optimize liquidity”. Leffler also told investors he continues to remain comfortable with CLOV’s liquidity position.

In addition to the business update, Clover announced that its Chief Operating Officer Jamie Reynoso would be transitioning to the role of CEO of the Medicare Advantage segment.

Credit Suisse analyst Jonathan Yong discussed how he believes the shortfall of guidance compared to consensus forecasts was driven partly by the flat membership numbers over the year.

Yong believes the slow down in growth and decline in membership might indicate that Clover may be pricing their products more appropriately.

Credit Suisse remains cautious on the outlook for the company with an ‘underperform’ recommendation and a $2.50 price target.

Fintel’s most recent consensus price target of $2.09 suggests the share price may be close to bottoming out.  However, the average target price has fallen from $3.65 at the beginning of December.

Forward revenue estimates from the platform indicate that the street expects sales to decline in 2023 before moderating in 2024/25.

For comparison, consensus EBITDA forecasts from the platform point to a recovery towards break-even levels over 2023/24.

Research on the Fintel platform highlighted that CLOV has a high Fund Sentiment Score of 86.69. This score ranks Clover Health in the top 2.5% of 36,187 companies when screened for the highest fund buying activity.

Although the share price has fallen substantially over 2022, Clover has attracted many institutional investors with 295 funds currently on the register. These institutions own a total of 129.2 million shares representing about 27% ownership of the total float.

Clover Health will next update investors during the release of fourth quarter results around the end of February.

This article originally appeared on Fintel

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