Shares of Clover Health (NASDAQ:CLOV) have been extremely volatile despite operating in the relatively boring insurance industry. CLOV stock has become a battleground of influence between Wall Street and Main Street.
Readers of my last article on CLOV would have done extremely well though. Since my last article in April, the CLOV stock price has more than tripled to an all-time high of $28.
The stock has since fallen back down to earth and is now trading once again close to the April price. Yet the adage “Buy low and sell high” still rings true and I believe it’s once again time to take a closer look at CLOV stock.
Street Is Overly Bearish on CLOV Stock
The fact that Wall Street analysts remain incredibly bearish on CLOV stock is a good thing. This is because the bearish sentiment that is weighing on the stock will fuel the next move up. Think of it as acting like a weight that is being put upon a spring.
In the last few months, several prominent Wall Street firms have downgraded CLOV stock. JPMorgan trimmed the target price to $9 from $15 a share. Bank of America analysts downgraded CLOV stock to “underperform” from “neutral” but maintained the price target of $10. Analyst Kevin Fischbeck stated that “The current growth trajectory does not support the valuation.”
Investment bank Cowen had the most damning analysis of all. The firm has a Wall Street low price target of $7 for CLOV stock. The firm’s analyst argues that “the company is risking it all on Clover Assistant.” This is a rather silly argument against Clover Health as the firm is a technology company so, of course, it is dependent on its technology.
Looking at TipRanks, CLOV stock scores a “moderate sell” rating and an overall “underperform” score. The average price target among all Wall Street firms is $9, implying not much upside from current price levels.
Direct Contracting Is Massive Success
Despite Wall Street’s sour mood, Clover Health’s most recent financials show a company that is on the upswing. Revenue for the second quarter was $412 million, which is a 140% increase compared to the same period last year.
The revenue increase for the quarter was primarily due to the launch of the company’s Direct Contracting program, Clover Home Care. The breakdown of the company’s revenue is as follows: Medicare Advantage premiums consisted of $195.4 million, while Direct Contracting revenue was $216.4 million.
These results highlight what a game-changer Direct Contracting could be for Clover Health’s business. Remember, the direct contracting allows Clover Health to access the much larger Medicare market. It does so by offering solutions in order to bring down medical expenses and improve health outcomes. Clover Home Care has been shown to reduce hospitalizations by 17% and expenses by $325 per member per month.
According to Clover CFO Joe Wagner, the company “is on a $1.6 billion annual revenue run rate based on the second-quarter results” Management’s guided 2021 revenues to be in the range of $1.4 billion to $1.5 billion. This is nearly double Wall Street consensus estimates of $811.5 million. I believe that the success of the Direct Contracting business has not yet been reflected in the stock price.
Investor Takeaway
CLOV stock has been consolidating between approximately $8 and $10 the past few months. No doubt this consolidation is due to having to digest the huge run-up and rapid fall from $28. Because of this investors that are underwater are forming the resistance levels that CLOV stock needs to work against.
The success of Direct Contracting, however, proves that the business itself is firing on all cylinders. I believe that Clover Health will deliver on its promises to revolutionize healthcare. Investors should consider once again hopping on the CLOV stock train.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
