Key Takeaways
- Oscar Health has achieved a significant operational turnaround, reporting its first-ever profitable quarter in Q1 2024, a fundamental shift that the market may not have fully priced in.
- The company’s improved Medical Loss Ratio (MLR) is the primary driver of its newfound profitability, suggesting its technology-led approach to managing costs is yielding tangible results.
- A notable disconnect exists between recent bearish analyst downgrades, which focus on future risks, and the company’s current positive performance and reiterated long-term financial targets.
- The upcoming Q2 2024 earnings report serves as a critical catalyst. Reaffirming its 2027 guidance for a sustained 5% Adjusted EBITDA margin could force a significant re-evaluation of the stock.
Oscar Health’s recent share price decline below the $15 mark has ignited a debate about its intrinsic value, particularly when viewed against its dramatic operational turnaround. An observation from analyst Alexis Capital suggests the market may have already priced in a litany of risks, implying the stock is inexpensive if management’s long-term strategy remains intact. This view forces a closer look at the insurer, moving beyond the noise of analyst downgrades to examine the fundamental shift that has occurred: Oscar is, for the first time, a profitable company. The central question is no longer if its model can work, but whether its newfound efficiency is sustainable and scalable.
A Pivot to Profitability Changes the Narrative
For years, Oscar Health was emblematic of a high-growth, cash-burning insurtech, valued on its potential to disrupt rather than its ability to deliver profit. The narrative, however, has fundamentally changed. The company’s first-quarter 2024 results marked a pivotal moment, reporting a GAAP Net Income of $177.4 million, a stark contrast to the $39.6 million loss in the same period a year prior.1 This was driven by a significant improvement in the company’s Medical Loss Ratio (MLR), which fell to 74.2%. In the health insurance sector, the MLR is a critical measure of efficiency, representing the portion of premium revenue spent on clinical services and quality improvement. A lower MLR indicates better cost control and underwriting discipline.
This is not a minor accounting adjustment but the result of a deliberate, multi-year strategy to leverage technology for better network design, member engagement, and claims processing. The market’s reaction, which has seen the share price fall significantly from its 52-week high, suggests a degree of scepticism about whether this performance is repeatable. Yet the figures demonstrate a clear inflection point in the business model.
| Metric | Q1 2024 | Q1 2023 | Year-over-Year Change |
|---|---|---|---|
| Premiums Earned | $2.1B | $1.4B | +46% |
| Medical Loss Ratio (MLR) | 74.2% | 84.5% | -10.3 percentage points |
| Adjusted EBITDA | $219.0M | ($20.0M) | +$239.0M |
| Net Income | $177.4M | ($39.6M) | +$217.0M |
Source: Oscar Health Q1 2024 Earnings Release.1
The Analyst Disconnect and the 2027 Question
Despite these robust results, Oscar Health has faced headwinds from the analyst community. In June 2024, Jefferies lowered its price target to $9, citing concerns over future risk adjustment data.2 Shortly after, Wells Fargo downgraded the stock to “Underweight” with a $10 price target.3 This bearish sentiment is predicated on future uncertainties and the potential for higher medical cost trends to re-emerge, pressures affecting the entire health insurance industry.
This creates a fascinating disconnect. While analysts focus on potential future headwinds, the company’s management has been unwavering in its long-term outlook. The “2027 guidance” mentioned in the initial thesis refers to Oscar’s stated goal of achieving a Total Company Adjusted EBITDA Margin of at least 5%.4 In its Q1 2024 report, management reaffirmed its full-year 2024 guidance, which represents a significant step towards that long-term target. The upcoming Q2 earnings report, anticipated in early August, is therefore a crucial test. A strong reiteration of the 2027 target, backed by another quarter of disciplined execution, would directly challenge the bearish thesis and could compel the market to re-evaluate the company’s trajectory.
Valuation in a New Light
The core of the investment debate now rests on valuation. With a market capitalisation of approximately $3.5 billion and trailing twelve-month revenues north of $7 billion, Oscar trades at a Price-to-Sales (P/S) ratio of roughly 0.5x. This multiple is remarkably low for a company that just grew its revenue by 46% year-over-year. Traditional, profitable insurance giants like UnitedHealth Group trade at a P/S of around 1.3x but with far more modest growth rates.5
The market appears to be in a state of cognitive dissonance, struggling to shed its perception of Oscar as an unprofitable tech disruptor. It is not yet affording the company the valuation of a stable, efficient insurer, nor is it rewarding its technology-driven growth. If Oscar can demonstrate that its Q1 profitability was not an anomaly but the start of a new, sustainable trend, the current valuation seems difficult to justify. The risk is that medical costs re-accelerate, but the potential reward is a significant valuation re-rating as the market catches up to the new reality.
The coming months will be telling. The Q2 earnings report will provide the next major data point on the sustainability of Oscar’s improved MLR and its path toward its 2027 targets. For now, the stock appears to reflect deep-seated doubt. A speculative hypothesis is that the market is mispricing the efficacy of Oscar’s technology stack. If its platform consistently delivers a superior MLR compared to peers, it deserves not just a comparable valuation, but a premium one. At current levels, investors are being asked to pay very little for that possibility.
References
1. Oscar Health. (2024, May 7). Oscar Health Reports First Quarter 2024 Results, Demonstrating Strong Momentum and Path to Profitability. Oscar Health Investor Relations. Retrieved from https://ir.hioscar.com/news-releases/news-release-details/oscar-health-reports-first-quarter-2024-results-demonstrating
2. Investing.com. (2024, June 21). Oscar Health stock price target lowered to $9 by Jefferies on risk adjustment concerns. Retrieved from https://www.investing.com/news/analyst-ratings/oscar-health-stock-price-target-lowered-to-9-by-jefferies-on-risk-adjustment-concerns-93CH-4129880
3. Yahoo Finance. (2024, June 25). Why Oscar Health (OSCR) Stock is Tumbling Today. Retrieved from https://finance.yahoo.com/news/why-oscar-health-oscr-stock-165042043.html
4. Oscar Health. (2024, May). Q1 2024 Earnings Presentation. Oscar Health Investor Relations. Retrieved from https://ir.hioscar.com/financials/quarterly-results/default.aspx
5. Yahoo Finance. (n.d.). UnitedHealth Group Incorporated (UNH) Statistics. Retrieved from https://finance.yahoo.com/quote/UNH/key-statistics
@alexis04613. (2024, July 29). [$OSCR below $15 feels like all risks are priced in.]. Retrieved from https://x.com/alexis04613/status/1817882298710925514
