Shares of eHealth gained 6.3% and closed at $57.68 on Feb. 19 after Hudson Executive Capital (HEC) ramped up its stake in the health insurance company as the investment company believes that the stock is “undervalued.”
According to a company filing, HEC bought 1.5 million outstanding shares of eHealth (EHTH), and now holds a 5.8% stake in the company. This is double the 750,501 shares of eHealth, which HEC held at the end of December last year.
HEC stated, “The Reporting Persons acquired the Subject Shares in the belief that the Shares are undervalued and are an attractive investment. Certain of the Reporting Persons have had and may continue to have discussions with the Company’s management and board of directors (the “Board”) to discuss the Company’s business, strategies and corporate governance.”
Meanwhile, EHTH on Feb. 18 reported disappointing 4Q earnings that missed analysts’ estimates. Revenue declined 3% to $293.3 million year-on-year and fell short of analysts’ estimates of $331.65 million. The company reported non-GAAP net income of $2.32 per diluted share, which lagged consensus estimates of $2.84 per share. (See eHealth stock analysis)
Citigroup analyst Daniel Grosslight reiterated a Buy rating and a price target of $64 (11% upside potential) on the stock, as he was “incrementally more positive” following the 4Q results.
Grosslight argued that EHTH provided more details on the reasons that impacted the company’s fiscal performance in 4Q, which he believes can be rectified in the near-term. As such, the analyst is confident that EHTH “will be able to right the ship this year.”
Looking ahead, he added that while EHTH’s FY21 guidance was in-line with expectations, over the long-term the company can achieve its goal of an adjusted EBITDA margin of 30% and free cash flow breakeven by 2025.
Overall, analysts are cautiously optimistic about the stock with a Moderate Buy consensus rating. That is based on 8 analysts recommending a Buy and 3 analysts suggesting a Hold on the stock. The average analyst price target of $72.60 implies about 26% upside potential to current levels.
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