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mid-cap

Buy This Insurance Aggregator - SLQT

Jul 09, 2021 | Team Kalkine
Buy This Insurance Aggregator - SLQT

SelectQuote, Inc.

SLQT Details

SelectQuote, Inc. (NYSE: SLQT) is a technology-driven, direct-to-consumer (DTC) distribution platform for senior health, life, auto, and home insurance policies. The company generates revenues by selling insurance products for a commission on behalf of insurance carrier partners. SLQT operates in three segments viz. 1) SelectQuote Senior (Senior) segment, which provides Medicare Advantage (MA), Medicare Supplement (MS), and dental, vision, and hearing (DVH) insurance plans offered by Humana, UnitedHealthcare, and Aetna insurance carriers companies; 2) SelectQuote Life (Life) segment, offering term and permanent life insurance plans and other ancillary products such as critical illness, accidental death, and juvenile insurance policies; and 3) SelectQuote Auto & Home (Auto & Home) segment, which provides auto, home, and specialty insurance policies underwritten by approximately 30 nationally recognized insurance carriers. As of July 08, 2021, the company’s market capitalization stood at USD 2.90 billion.

Expansion Into Healthcare Services: SLQT launched its Population Health platform on May 3, 2021, intending to enhance medication adherence, health literacy, and patient engagement among elders. The underlying pillars of Population Health are partnerships with leading value-based primary care providers and specialist drug management pharmacies.

9MFY21 Results: The company reported a sharp uptick of 92.11% in total revenue to USD 749.37 million during 9MFY21 (ended March 31, 2021) compared to USD 390.07 million during 9MFY20, primarily due to an increase in commission and production bonuses. SLQT recorded an adjusted EBITDA of USD 206.75 million during 9MFY21 compared to USD 113.89 million during 9MFY20. The company witnessed a significant increase in net income to USD 127.73 million in 9MFY21 vs USD 61.10 million in 9MFY20.

Financial Metrics (Source: Q3FY21 Earnings Presentation, May 11, 2021)

Key Risks: The company's top three insurance carrier partners i.e., UnitedHealthcare, Humana, and Aetna, collectively accounted for 55% and 49% of the total revenues in FY20 and FY19. Undue reliance on certain insurance partners for business could harm the company’s financial operations in the long run. Further, insurance companies can sell products and services to consumers directly or via competitors.

Outlook: For FY21, the company expects its revenue to be in the range of USD 920 million to USD 940 million, with adjusted EBITDA to be around USD 225 million to USD 235 million. SLQT expects its net income to range between USD 130 million and USD 138 million, which represents a 60-70% growth as compared to the previous year.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SLQT Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SLQT stock fell by 41.95% in the past 3 months, and is currently leaning towards the lower-band of the 52-week range of USD 15.76 to USD 33.00. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 26.34. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 21.06. Considering the company’s growth prospects, strategic expansion initiatives, improving profitability, and current valuation, we recommend a “Buy” rating on the stock at the closing price of USD 17.42, down by 2.13% as of July 08, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.