On Thursday, BofA Securities revised its stance on Oscar Health Inc (NYSE:OSCR), downgrading the stock from Buy to Neutral and adjusting the price target to $21 from the previous $25.
The change reflects the analyst's view on the company's expected margin trajectory and the potential impact of political uncertainty on the stock's performance.
The analyst noted that the approach to Oscar Health's valuation now incorporates a 50% probability of the expiration of exchange subsidies, crucial to the company's earnings.
These subsidies are a part of legislation passed under the Biden administration and are currently set to expire on January 1, 2026.
The possible discontinuation of these subsidies could significantly affect the stock, with an estimated 60% earnings per share (EPS) difference under scenarios where they either expire or are extended.
Oscar Health has seen its stock price soar nearly 200% over the past year. However, the analyst expressed that the stock's recent performance and the uncertainty surrounding the exchange subsidies have led to a more balanced risk-reward scenario, prompting the downgrade to Neutral.
In contrast, BofA Securities sees more potential in Alignment Healthcare (NASDAQ:ALHC), which has been upgraded to Buy on the same day.
Alignment is anticipated to begin showing profitability and is considered to have a more attractive valuation and less exposure to regulatory risks compared to Oscar Health.
The analyst's assessment suggests caution for investors in Oscar Health due to the looming expiration of exchange subsidies and advises a shift in focus towards other healthcare stocks with different regulatory landscapes and growth trajectories.
InvestingPro Insights
Amidst the recent downgrade of Oscar Health Inc (NYSE:OSCR) by BofA Securities, InvestingPro data and tips provide additional context for investors considering the company's prospects. Oscar Health's market capitalization stands at approximately $4.78 billion, with a substantial revenue growth of 45.77% in the last twelve months as of Q1 2024. Despite this impressive top-line growth, the company's P/E ratio remains negative at -84.79, reflecting its current lack of profitability.
However, investors may find a silver lining in the company's stock performance, with a notable one-year price total return of 186.65%. This aligns with an InvestingPro Tip highlighting the company's high return over the last year, suggesting that while the company may be facing challenges, it still has the ability to generate significant investor interest. Additionally, analysts predict that Oscar Health will become profitable this year, which could signal a turning point for the company's financials.
For those looking to delve deeper into Oscar Health's financials and future outlook, there are additional InvestingPro Tips available, including insights on gross profit margins and stock volatility. With these tools at their disposal, investors can make more informed decisions. For access to these comprehensive insights, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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