SelectQuote, Inc.

SLQT Details

SelectQuote, Inc. (NYSE: SLQT) is a technology-driven, direct-to-consumer (DTC) distribution platform for senior health, life, car, and home insurance products from a panel of major insurance providers around the country. It sells insurance products for a commission on behalf of insurance carrier partners. Its main business lines are SelectQuote Senior, SelectQuote Life, and SelectQuote Auto.

Class-Action Lawsuits: Multiple law firms disclosed filing class-action lawsuits against SLQT on August 26, 2021. The lawsuits allege that false/misleading representations/omissions were made by SLQT between February 8, 2021, and May 11, 2021, by making optimistic claims regarding its business without a reasonable foundation.

Partnership with Zing Health: On August 3, 2021, SLQT announced a collaboration with Zing Health for Medicare beneficiaries in Indiana, Illinois, Michigan, Chicago, Detroit, and Indianapolis. Zing Health is a tech-enabled insurance company that provides Medicare Advantage to seniors and those with long-term disabilities. With the growing demand for Medicare, SLQT feels that incorporating Zing into its platform will be helpful in the long term.

Developments on SLQT's Platform: On June 30, 2021, SLQT announced that Heal, Inc., a home-based primary care company, will join Population Health's advanced patient engagement model focused on improving health outcomes while reducing total healthcare expenditures. Heal and its current patients will now have full access to the Population Health ecosystem of physicians and partners. SLQT launched its Population Health platform on May 3, 2021, intending to improve medication adherence, health literacy, and patient engagement among the elderly.

FY21 Results: The company reported a sharp uptick of 76.44% in total revenue to USD 937.82 million in FY21 (ended June 30, 2021) compared to USD 531.52 million in FY20, primarily due to an increase in Senior and Life commission revenues. SLQT recorded an adjusted EBITDA of USD 228.03 million in FY21 compared to USD 154.02 million in FY20. The company witnessed a significant increase in net income to USD 131.05 million in FY21 vs. USD 81.15 million in FY20.

Financial Metrics (Source: FY 21 Earnings Presentation, August 25, 2021)

Key Risks: The company's top three insurance carrier partners, UnitedHealthcare, Humana, and Aetna, contributed 55% and 49% of total sales in FY20 and FY19, respectively. Over-reliance on specific insurance partners for business might harm the company's financial operations in the long run. In addition, insurance companies can offer their products and services directly to customers or via rivals.

Outlook:

FY22 Guidance (Source: FY21 Earnings Presentation, August 25, 2021)

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's FY1 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's stock price fell by 73.04% in the past six months and created a fresh 52-week low today. The stock is currently trading far below its 50 and 200 DMA levels, and its RSI Index is at 16.74. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 9.94. Considering the company's growth prospects, strategic expansion initiatives, strong margins, associated risks, and current trading levels, we recommend a "Speculative Buy" rating on the stock at the current price of USD 8.10, down 43.55% as of August 26, 2021, 12:11 PM ET.

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

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Five Star Senior Living Inc.

FVE Details

Five Star Senior Living Inc. (NASDAQ: FVE) is a leading senior living and rehabilitation and wellness services company in the US. Its operating segments are 1) Senior Living, which provides independent living communities (ILs), assisted living communities (ALs), Continued Care Retirement Communities (CCRCs), and Skilled Nursing Facilities (SNFs), and 2) Rehabilitation and Wellness (R&W) services, including physical, occupational, inpatient and outpatient clinics as well as fitness services. As of June 30, 2021, it operated 252 senior living communities across 31 states with 27,733 living units, ten inpatient and 218 outpatient R&W clinics.

Revenue Mix (Source: Investor Presentation, August 2021)

Progress on the Strategic Repositioning Plan: On April 09, 2021, FVE had announced a new strategic plan to reposition its Senior Living management business by focusing on larger IL, AL senior living communities and stand-alone active adult communities. During Q2FY21, FVE made significant progress with its strategic plan. On June 09, 2021, it amended its management arrangements with Diversified Healthcare Trust (DHC). As of June 30, 2021, FVE closed 1,473 of ~1,500 SNF living units in 26 of the 27 CCRCs. It also initiated the repositioning process of these SNF living units and closed 27 out of 37 Ageility inpatient rehabilitation clinics planned for closure. In addition, in July 2021, DHC agreed to hand over the management of 76 of 108 transitioning senior living communities, which account for ~5,200 living units, to new operators in 2021.

Senior Living Portfolio Transition (Source: Investor Presentation, August 2021)

Q2FY21 Results: The company reported a YoY decline of 9.28% in the total revenue to USD 258.62 million in Q2FY21 (ended June 30, 2021) compared to USD 285.08 million in Q2FY20. FVE reported a net loss of USD 12.30 million in Q2FY21 vs. a net income of USD 3.00 million in Q2FY20. As of June 30, 2021, the company had cash & cash equivalents (including short-term investments) of USD 118.71 million and total debt of USD 11.31 million.

Key Risks: FVE is significantly dependent on its relationship with DHC. As of June 30, 2021, DHC owns 228 of the 252 senior living communities that FVE operates. In addition, reimbursement from government programs and third-party payers accounts for the majority of FVE's revenue. For example, in FY20, third-party payers for certain rehabilitation and wellness services accounted for 50.6% of its total revenues. As a result, any reduction in reimbursement from these third-party payers could harm the company's financials.

Valuation Methodology: EV/EBITDA 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.

FVE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: FVE's stock price fell by 27.48% and 37.45% in the past three and six months and is currently leaning towards the lower end of its 52-week range of USD 3.81 to USD 9.25. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 44.61. We have valued the stock using the EV/EBITDA multiple-based relative valuation methodology and arrived at a target price of USD 5.75. Considering the correction in the stock price in the past six months, progress in the strategic repositioning plan, decent balance sheet, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 4.46, down 3.04% as of August 26, 2021, 12.47 PM ET.

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

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.