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small-cap

Speculative Bet on this Insurance Aggregator – SLQT

Nov 09, 2021 | Team Kalkine
Speculative Bet on this Insurance Aggregator – SLQT

SelectQuote, Inc.

SLQT Details

SelectQuote, Inc. (NYSE: SLQT) is a technology-driven direct-to-consumer (DTC) distribution platform that connects individuals with a curated panel of the nation's top insurance carriers to shop for sophisticated senior health, life, and auto & home insurance products. In addition, the company's platform gathers and uses its experience to improve upon the millions of data points that feed its marketing algorithms, allowing it to allocate marketing budgets better and target more high-quality customer leads in the future.

Latest News:

  • Collaboration with Ready Responders: SLQT announced a new partnershipwith Ready Responders on October 26, 2021. Ready Responders uses an innovative care delivery approach to provide non-emergency healthcare services to patients in their homes. Partnering with Ready Responders is a crucial aspect of its platform (Population Health) because it allows members to receive the appropriate treatment at home instead of going to the emergency department.
  • Transition in Leadership: On October 14, 2021, SLQT announced that Robert "Bob" Grant had been promotedto President of the company by the Board of Directors, effective October 28, 2021.

Q1FY22 Results:

  • Expansion in Topline: The company recorded a substantial 28.79% increase in total revenues to USD 159.92 million in Q1FY22 (ended September 30, 2021) compared to USD 124.17 million Q1FY21.
  • Incurred Net Losses: SLQT recorded a net loss for Q1FY22 to USD 45.37 million vs. a profit of USD 0.84 million in Q1FY21.
  • Growth in Submitted Policies: It further reported a 64.09% increase in submitted policies to 130.64 thousand in Q1FY22.

Key Risks:

  • Insurance Vendor Concentration Risk: Three insurance carrier partners contributed 29%, 21%, and 10% of total accounts and commissions receivable on June 30, 2021. Three insurance carrier partners contributed 26%, 20%, and 10% of total accounts and commissions receivable on June 30, 2020. 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.

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 has fallen 60.83% in the past six months and is leaning towards the lower band of the 52-week range of USD 7.72 to USD 33.00. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 34.50. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 13.51.

Considering the company's growth prospects, strategic expansion initiatives, associated risks, and current trading levels, we recommend a "Speculative Buy" rating on the stock at the current price of USD 10.98, up 2.04% as of November 08, 2021, 1:42 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.