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Bear of the Day: eHealth Inc (EHTH)

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Today’s Bull of the Day is a healthcare company that has seen hugely increased demand for its products recently, resulting in excellent earnings results and increased estimates going forward.
Today’s Bear of the Day is heading in the opposite position, issuing disappointing guidance recently that sent earnings estimates for the next two years tumbling.

eHealth Inc (EHTH - Free Report) operates a private online marketplace for health insurance, matching customers with insurers, primarily for Medicare-related insurance like prescription coverage and Medicare Advantage. The company also sells plans for small businesses and individuals as well as dental and vision coverage, but Medicare makes up more than 90% of revenues.

Doing business as, eHealth sells plans in all 50 states and offers coverage from more than 180 carriers. More than 50% of revenues come from the top five insurance company partners.

Despite the high-tech name, eHealth’s has offered significantly more human contact than many online marketplaces, with an extensive and growing team of licensed agents and service reps on hand to assist customers who are often minimally proficient with technology and/or don’t trust a business that transacts exclusively online.

That level of contact is popular with prospective customers, but it’s also expensive to provide. Additionally, the company has relied on external telesales agents who have recently been underperforming at onboarding new paying customers.

Medicare segment revenue was up 12% in the 4th quarter and 28% in full-year 2020 over the corresponding year-ago periods, yet profits were down 23% and 10% respectively – a shortfall management hung on that external sales team. eHealth plans to increase its internal sales team and focus on customer acquisition channels with higher rates of return in 2021, but it remains to be seen how effective that transition will be.

The worst part of the Q4 report was the guidance. ehealth forecasts $660-700 million in revenues in 2021 and non-GAAP adjusted income of $2.77-3.26/share. While that’s a modest improvement over 2020, the markets were expecting a much better 2021.

The Zacks Consensus Earnings Estimate for full-year 2021 had been as high as $5.44/share and fell all the way to $2.81.

The 2022 estimate fell by a similar amount. Those reduced estimates contribute to a Zacks Rank #5 (Strong Sell). The company also earns a score of “F” in Growth, Value and Momentum – resulting in a VGM of “F”.

ETHT shares took a beating earlier in the year but have been inching higher recently despite the lowered expectations.

That increase in price could be an opportunity for those with a long position to lighten up. Though there’s no catalyst on the horizon to make eHealth a candidate for a short position, those reduced earnings expectations make it a risky investment.

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