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eHealth is
scheduled to report third quarter 2008 results after the market
closes on Thursday, October 30. Based on our analysis, we at
eChristianInvesting are expecting EHTH to report better than
expected results that beat Wall Street’s consensus expectations.
Analyst
Expectations
We are
forecasting revenues of $29.5 million and EPS of $.14. This
would represent a slight decrease in revenues from last year’s
$23.0 million in the same period. The current analyst consensus
calls for revenues of $28.8 million and $.12 EPS. On July 31,
the company reduced their full year guidance to revenues of
$111.5 – 113.5 million and EPS of $.50 – .57.
Investors
have expressed concern about the future performance of this
business due to 1) reduced consumer spending, and 2) an Obama
presidency that makes sweeping changes to the entire healthcare
industry. However, we are of the belief that investor’s concerns
are overdone.
While the
difficult economic climate has certainly had an impact on
consumer spending, health insurance is generally not considered
a discretionary item. While applications growth may slow, we
believe that eHealth will end up benefiting from the economic
climate as consumers become more diligent in looking at ways to
reduce expenses.
In
addition, while we consider it all but certain that Obama will
win the election, we do not share the belief that he will be
able to make wide-sweeping changes soon after taking office. The
failing economy will have to be his main priority. While
providing universal healthcare to every American makes great
campaign talk, the reality is that it costs money. Money that is
currently being used to keep this country out of another Great
Depression.
Share
Performance
To date,
eHealth’s shares have dropped 62%. Meanwhile, the NASDAQ has
only fallen 42%. It seems as though Wall Street is already
pricing in more negative news.
Valuation
Shares are
now trading at 19x consensus 2009 EPS estimates. This is a
premium to their peer group, but we believe that eHealth remains
one of the truly game-changing players within the internet
sector. While it’s possible that the shares may continue to
trade lower, we recommend investors buying on the weakness and
see this as a great long-term holding.
Recommendation:
Buy with a $15 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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