Clover Health Investments: Improving Fundamentals Inspires Bullish Outlook (CLOV)

Investment Thesis

Clover Health Investments, Corp.(NASDAQ:CLOV) has been on a transformative journey characterized by profitability objectives. I am thrilled by the company’s improving fundamentals, leading me to a long-term bullish stance. Its financial performance has been improving on a quarterly basis, which I believe reflects on its commitment to profitability objective.

Given the company’s business model, which I believe is very reassuring, I am bullish on the company’s long-term performance. Further, its technical analysis points out to a potential onset of a long-term bullish trajectory. Given this background, I recommend buying CLOV, but investors should be cautious of the potential risks I will cover in this analysis.

CLOV Business Model

CLOV’s business model is based on providing Medicare Advantage plans and a software platform called Clover Assistant, which helps physicians deliver personalized and preventive care to their patients. I believe its business model has been critical in its growth, and in my opinion, it will be a long-term growth catalyst for several reasons. Firstly, the company leverages its proprietary technology platform, Clover Assistant, to collect, structure, and analyze health and behavioral data from various sources, such as electronic health records, claims, lab results, and patient surveys. It uses this data to generate real-time, personalized, and actionable insights and recommendations for physicians and patients, such as care gaps, medication adherence, chronic disease management, and preventive screenings. I believe these practices can improve medical outcomes, lower patient costs, and increase physician satisfaction and efficiency, translating to customer retention and a good business reputation.

Secondly, CLOV operates in the Medicare Advantage market, which is one of the fastest-growing segments of the U.S. healthcare system. Medicare Advantage is a type of health insurance plan that offers seniors more benefits, services, and choices than traditional Medicare. According to the Centers for Medicare and Medicaid Services, Medicare Advantage enrollment is expected to reach 27.4 million in 2023, representing 44% of the total Medicare population. The company estimates that the total addressable market for Medicare Advantage is $270 billion in 2023 and is projected to grow to $590 billion by 2028. From where I stand, this increasing market bodes well for the company’s top and bottom lines, which explains why its financial performance is improving and its profitability goal is achievable.

Again, the company has a diversified portfolio of Medicare Advantage plans that cater to various consumer segments, such as chronic special needs plans (C-SNPs), dual-eligible special needs plans (D-SNPs), preferred provider organization [PPO] plans, and health maintenance organization [HMO] plans. It offers competitive premiums, low or zero copays, comprehensive benefits, and wide provider networks to its members. Further, it also has a differentiated capability in Clover Home Care, which provides in-home care services to eligible members, such as skilled nursing, physical therapy, occupational therapy, and speech therapy. This gives the company a competitive edge, which I believe will position it strategically in the growing market.

Lastly, the company strategically focuses on innovation and growth, especially in the Clover Assistant segment, which is the core of its value proposition. It has invested in research and development, acquisitions, and partnerships to enhance its product offerings and market presence in this segment. For example, the company partnered with Walmart (WMT) to launch a co-branded Medicare Advantage plan, Walmart + Clover, in eight states 2023. It also launched Clover Therapeutics, a research and development company, to develop novel therapies for age-related diseases in 2023.

In conclusion, I am thrilled by the company’s business model, which is very reassuring. The model is growth-oriented and very competitive, in my view. For this reason, I believe it will be a long-term growth catalyst.

Improving Fundamentals

CLOV has been improving its fundamentals in recent quarters, which may have positive implications for its long-term share performance. Some of the factors that indicate the company’s improving fundamentals are as follows.

Its insurance revenue grew by 12% to $301.2 million in the third quarter of 2023, compared to the same period in 2022. This, in my view, shows that the company is able to generate income from its core business segment despite the challenges posed by the COVID-19 pandemic and the competitive market. Further, its Insurance MCR (medical cost ratio), which measures the percentage of premium revenue spent on medical claims, improved to 78.5% in the third quarter of 2023 from 86.3% in the same period in 2022. This shows that the company is effectively managing its medical costs, benefiting from its PPO-first approach, which offers more flexibility and choice to its members, and its Clover Assistant platform, which leverages data and artificial intelligence to provide clinical decision support to physicians.

The company’s Adjusted EBITDA, which is a measure of operating profitability, improved to a loss of $5.1 million in the third quarter of 2023 from a loss of $55.5 million in the same period in 2022. This shows that the company is significantly reducing operating expenses and moving closer to profitability.

It also announced business transformation initiatives to accelerate its path to profitability, including an agreement to move its core plan operations to UST HealthProof’s integrated technology platform and additional corporate restructuring actions. This, in my view, shows that the company is taking proactive steps to enhance its operational efficiency, scalability, and customer experience and to optimize its cost structure and capital allocation.

In conclusion, I believe these factors suggest that CLOV is improving its financial performance and growth prospects, which may translate into higher share value in the long term. These aspects and the company’s business model inspire my bullish outlook on this stock.

Technical Analysis

Technical analysis evaluates the stock’s price movements and trends based on various indicators and charts. It can help investors identify entry and exit points and potential opportunities and risks. Here is the technical analysis of CLOV based on several indicators.

Moving averages: CLOV is currently above its 50, 100, and 200-day exponential moving averages, which suggests a bullish trend. However, it recently broke above the M.A.s, which calls for patience or cautious buy for a confirmatory test, perhaps if the price maintains above the M.A.s for about a month.

Oscillators: CLOV has a relative strength index [RSI] of 60.1 and a commodity channel index [CCI] of 168. Both are raising an indication of a bullish trend. The RSI is not yet in the overbought zone, which shows that it has room for more growth.

Support and resistance: CLOV has support at $0.77 from a trend line in the annual time frame and resistance at $1.56 from a trend line in the annual time frame. The stock appears to be bullish, having bounced on the support zone, and is currently approaching its resistance zone. Given the improving fundamentals, I strongly believe the bullish trend will be sustained in the long run, justifying a buy decision in my view.

Risks

Although I am bullish on this stock in the long run, there are risks associated with investing here. Some of the risks are as follows;

The company is subject to ongoing regulatory and legal investigations by the Department of Justice and the Securities and Exchange Commission, which may result in fines, penalties, or litigation. These investigations stem from allegations of misleading investors and customers about its business practices, such as its Clover Assistant platform, sales and marketing strategies, and financial performance. The outcome of these investigations is uncertain and may have a material adverse effect on the company’s reputation, operations, and share price.

The company relies heavily on its Clover Assistant platform, which is proprietary software that uses data and artificial intelligence to provide clinical decision support to physicians. The company claims that its Clover Assistant platform can improve the quality and efficiency of care, and reduce the medical costs for its members. However, the company faces several challenges and risks related to its Clover Assistant platform, such as the accuracy, reliability, and security of its data and algorithms, the adoption and satisfaction of its providers and members, the compliance with the applicable laws and regulations, and the protection of its intellectual property rights. Given these risks, my bullish stance would change should the company be found guilty of the legal allegations because it would majorly blow its share prices.

Conclusion

Based on this analysis, I am bullish on CLOV, given its improving fundamentals and the bullish trend shown by the technical analysis. I recommend the stock to potential investors but proceed cautiously, given the impending risks.