Alignment Healthcare's Valuation Shows Promise In A Competitive Market: Analyst

Alignment Healthcare Inc ALHC announced that its California Medicare Advantage (MA) HMO – which represents roughly 89% of its MA membership – has maintained an overall 4 out of 5-star rating from the Centers for Medicare & Medicaid Services (CMS) for 2024, marking its seventh consecutive year as a 4-star or greater plan. 

Additionally, its North Carolina HMO achieved an overall 4.5 out of 5-star rating for 2024, its second year eligible for rating.

Raymond James has upgraded Alignment Healthcare to a Strong Buy and increased the price target to $10 following the 2024 Star Ratings release. 

The company's legacy H3815 plan, with ~90% of its membership, retained its 4 star status despite fears it would drop below the 3.5 star threshold, potentially leaving it to face a ~$70 million headwind. 

Related: Analyst Cautiously Optimistic On Alignment Healthcare, Assesses Journey to Profitability Of Medicare Advantage Firm.

The analyst notes Alignment Healthcare's valuation trades at 0.5x 2024E and 0.4x 2025E revenue. 

The valuation is undemanding, given the runway for growth in existing markets, visibility on the path to profitability, and a differentiated model with its tech-enabled care teams. 

This compares to Humana Inc HUM, which trades at ~$10,000 of EV per MA life, but a more favorable growth profile and superior tech stack support this higher multiple. 

Additionally, the 0.7x revenue multiple is a significant discount to profitless growth peers in healthcare, namely Accolade Inc ACCD, Health Catalyst Inc HCAT, and Phreesia Inc PHR, which trade at 1-2x revenue.

Price Action: ALHC shares are up 20.4% at $7.97 on the last check Monday.