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Clover Health (NASDAQ:CLOV), a medical insurance provider affiliated with the US Medicare program, shocked investors earlier this week as its shares registered a gain of over 20 percent without any discernable cause, fueling a Reddit-driven frenzy among retail investors. Well, the stock’s fortunes are reversing today as a Wall Street behemoth has now puked on the company’s prospects.
As a refresher, Clover Health is an affiliated insurance provider under the US Medicare program. The company currently receives a fixed sum of money every year for each of its registered patients. Its profit is computed by deducting all patient-related insurance claims from this lump-sum amount. Given this compensation structure, Clover Health has an incentive to minimize the costs related to the patients’ claims. In order to achieve this, the company incentivizes accurate diagnosis of its registered pool of patients by onboarding doctors to its proprietary Clover Assistant digital platform – a web application that aggregates all Clover patient outcomes and uses models to identify issues such as patients not following their prescriptions – and paying those doctors nearly double the prevailing Medicare physician fees. In fact, it was this lucrative physician fee structure that was the subject of a high-profile short report a few months back.
This brings us to the crux of the matter. Cowen Inc. analyst Gary Taylor has now pegged a $7 stock price target on Clover Health shares, constituting a street-wide low among analysts. At the core of Taylor's 'Underperform' rating is a healthy skepticism regarding the efficacy of the Clover Assistant platform and “unmanaged FFS physician practices” in yielding “best-in-class care management and per-capita medical costs.”
Gary Taylor went on to note:
“Some investors fear CLOV’s [Clover Health’s] SPAC origins, limited float and extreme price and volume volatility associated with Reddit interest in the stock. Our view: all valid points.”
Finally, the analyst believes that Clover Health will invariably have to raise additional capital, especially as it is expected to remain a loss-making entity through 2025. Bear in mind that the company now expects to earn a full-year revenue of between $1.4 billion and $1.5 billion in 2021.
Readers should note that Clover Health is consistently ranking as one of the most popular stocks on Reddit discussion boards.
Clover Health’s proponents point to America’s aging population and the attendant growth in the company’s Total Addressable Market (TAM) as a key bullish bulwark. As an illustration, Americans over the age of 65 are expected to number around 71 million by 2030, as opposed to just 54.1 million back in 2019.
