$Oscar Health, Inc.(OSCR)$ was a market darling a week ago, but everybody is dumping the stock now.
Yet, nothing has changed in the business fundamentals.
Here is why it's an asymmetric opportunity now: 🧵
1/ $Oscar Health, Inc.(OSCR)$ is a healthcare disruptor.
Americans have the lowest life expectancy among the developed nations despite having the best hospitals.
The reason is that the US healthcare system is broken.
Hear it from the OSCR founder:
2/OSCR is revolutionizing the US healthcare system.
It built a direct-to-consumer health insurance platform.
Its mobile application manages onboarding, benefits, and claims.
This model reduces agency costs and enables it to offer cheaper premiums.
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3/ OSCR focuses on insurance marketplaces created by the Affordable Care Act (ACA).
It focuses on two groups:
- ACA eligible individuals.
- Small and medium businesses through individual coverage health insurance reimbursement (ICHRA). T
This is a huge market composed of 96 million people with a total size of $720 billion.
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4/ It has a distinct strategy called "Total Cost of Care."
Rather than avoiding client activity at all costs, as traditional insurers do, it prompts clients to take small actions to prevent big future claims like surgeries.
Every client gets a personalized concierge and nurse that they can directly message through the Oscar app. They personally track clients' routine check-ups, drug fulfillment, and chronic diseases.
Its strategy is to keep them healthy.
This aligns interests, and clients love it.
It has an industry-leading net promoter score of 66!
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5/ This strategy is working.
Its claims costs are increasing at a slower rate than medical CPI, as it does a better job of keeping its clients healthy.
This allows it to keep prices low and win clients.
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6/ Result? Revenues are exploding...
It grew revenues from 391 million to $9.1 billion in just 5 years ⎯ it has become profitable!
This is an amazing performance that even the most cutting-edge software companies would struggle to replicate.
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7/ Its financial position is also rock solid.
It currently has $1 billion in equity against just $373 million in debt.
Its total cash position is $770 million bigger than regulatory requirements.
This means that it can deploy nearly $800 million for strategic expansion
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8/ It also has substantial room for margin expansion.
Share of SG&A expenses in revenue is currently about 19%, while the management targets 16% by 2027.
It also expects to cut the medical loss ratio to 80%.
This will result in above 5% operating margin, way higher than industry peers.
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9/ There are two substantial risks:
- Repeal of ACA
- Expiration of enhanced subsidies.
Repeal of the ACA would be destructive, but Trump said he won't repeal the ACA but reform it.
If enhanced subsidies expire at the end of this year, premiums will increase, ACA enrollments will decline, and OSCR performance will slow down, but it won't be existential.
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10/ Valuation is attractive.
The management expects 20% revenue CAGR until 2027 and $2.25 EPS.
Even if it just achieves $1.5 EPS in 2027, at 20 times earnings, it'll be worth $30 a share.
Discounting it back to now at 10%, we get a fair value of $24.80 a share.
It's currently trading at $17, a 32% discount to the intrinsic value calculated based on conservative assumptions.
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