Health Insurance Innovations (NASDAQ: HIIQ) is a developer of innovative health insurance platforms which offers access to short-term health coverage for both individuals and families. These plans include various copay and deductible levels, which help the company increase affordability prospects for a wider consumer demographic (relative to its industry competitors).
The company has developed its cloud-based systems to work in conjunction with a wide array of discount health providers, offering fixed-cash health benefits for services, procedures, and supplemental insurance products (including deductible and gap protection programs, vision programs, dental programs, critical illness and cancer programs, pharmacy benefit programs, and policies for life insurance) for U.S. consumers.
The company’s stock ticker is HIIQ and it currently trades with a market cap of $334.72 million, a price-to-earnings ratio of 8.28, a forward price-to-earnings ratio of 6.53x. After reaching highs of $63.13 in October 2018, shares of HIIQ have fallen by -63.58% and those downward trends have created a price-to-book ratio of 3.16x for HIIQ.
However, when making an assessment of the company’s long-term potential for earnings and revenue growth, the stock is trading at exceptionally undervalued levels. In 2019, HIIQ is likely to achieve 23-29% growth in earnings per share on growth in revenues of 24%. Guidance figures released by Health Insurance Innovations indicate earnings per share will range between $3.50-3.75 in 2019, while revenues are expected to post at $430-440 million for the full-year period.
Needless to say, this is well above the consensus expectations amongst analysts for the broader market. However, even these impressive earnings and revenue expectations might actually turn out to be conservative because regulatory tailwinds enacted on October 2nd, 2018 have removed limits on short-term health insurance plans.
Recent rule changes extended the potential duration of short-term insurance programs (from 90 days to roughly one year). Those rule changes also include renewal options which can be extended for 36 months. Since these are the program types which accounted for about 25% of the revenue generated by Health Insurance Innovations in 2018, it stands to reason that the supportive legislation could help the company beat initial performance estimates for growth this year.
Moreover, the Department of Health and Human Services has released its own estimates, which indicate short-term health insurance policy enrollment is likely to rise by about 600,000 total policies this year. Even better, the long-term estimates from DHHS suggest that these figures have the potential to grow to 1.4 million during the next five years. Most of these consumers currently have insurance policies compliant with the Affordable Care Act, however recent economic trends have made these programs increasingly expensive for large numbers of people.
Essentially, the recent changes in healthcare legislation have raised the earnings outlook for Health Insurance Innovations. However, these positive developments have not been accurately reflected in share prices as excessive changes in short interest and the stock’s put-call ratio have reached extreme levels. According to Ask Traders, the put-call ratio can be an excellent indicator of a reversal point in a stock’s share price, so these recent trends may have created opportunities for investors that are potentially significant. The supportive regulatory outcomes in October add strong fundamental arguments to these technical arguments that are bullish for HIIQ, so the main suggestion here is that investors could see much higher valuations in the stock before the end of this year.
In all likelihood, recent regulatory outcomes will continue to raise the earnings and revenue outlook for the company. Since both of these metrics are on a positive trajectory and the Federal Trade Commission has officially cleared Health Insurance Innovations of any wrongdoing in relation to its former relationship with terminated distributor Simple Health, there appears to be little resistance capable of pressuring share prices during the second half of this year. If the current projections from the Department of Health and Human Services are accurate, last October’s favorable legislative outcomes have the potential to raise the availability (and duration) of the company’s affordable health insurance programs for consumers. This suggests Health Insurance Innovations has the potential to surpass the market’s expectations for both earnings and revenue in the quarters ahead.