CLOV Stock Price Forecast June 2021 – Good Stock to Buy?
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Clover Health (CLOV) stock fell over 6% yesterday but was trading higher in US premarket price action today. What’s the forecast for CLOV stock and is it a good buy in June 2021?
Clover Health went public earlier this year through a reverse merger with Social Capital Hedosophia Holdings (IPOE) which is a SPAC (special purpose acquisition company) sponsored by Chamath Palihapitiya.
CLOV Stock
CLOV stock traded on a weak note after short-seller Hindenburg Research accused the company of fraud and hiding material facts from investors. In its report, Hindenburg said that “Clover has not disclosed that its business model and its software offering, called the Clover Assistant, are under active investigation by the Department of Justice (DOJ), which is investigating at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals, according to a Civil Investigative Demand (similar to a subpoena).”
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Clover Health ridiculed the findings
Hindenburg Research has targeted several companies including Nikola and Lordstown Motors. Both these companies saw a shakeup in the top management after the allegations. However, both CLOV and Palihapitiya had dismissed Hindenburg Research findings and Palihapitiya called them “spurious.” Most recently Hindenburg Research has targeted sports betting company DraftKings which like CLOV went public through a SPAC merger. DraftKings stock also tumbled yesterday after the allegations.
CLOV stock fell sharply after Hindenburg Research allegations
After the allegations CLOV stock went as low as $6.31 which was a 37% discount to its IPO price of $10. However, the stock then featured on Reddit group WallStreetBets and went as high as $28.85. As is the case with other stocks pumped by WallStreetBets, CLOV stock is now down sharply from the highs even as it trades above the price level it did before it was targeted in the short squeeze.
Technical analysis
CLOV stock currently trades above the 30-day SMA (simple moving average), 50-day SMA, and 100-day SMA which is a bullish indicator. The stock has a 14-day RSI (relative strength index) of 57.6 which is neither overbought nor oversold. The stock’s MACD (moving average convergence divergence) is 1.91 which is a buy indicator.
CLOV stock forecast
Of the five analysts covering CLOV stock, two rate them as a buy while two rate them as a hold. One analyst has a hold rating on the stock. Its target price of $10.80 is a discount of 21.5% over current prices. Earlier this month, Bank of America downgraded the stock from neutral to underperform after it rallied on the Reddit-driven short squeeze.
“The company is now trading at a 70% premium to ALHC … its closest comp, despite a similar growth profile and lower near term margin trajectory,” said Bank of America analyst Kevin Fischbeck in his note. He added, “Although we continue to believe … Clover Assistant provides value and helps reduce costs, and CLOV is likely to continue to grow faster than the [Medicare Advantage] market overall, the current growth trajectory does not support the valuation.”
Bank of America downgraded CLOV stock
Bank of America also sounded pessimistic on CLOV stock as it had lowered its guidance during the first quarter 2021 earnings call. “To some degree, we think falling short on membership in a new government program is completely understandable given the number of moving pieces, but doing so the quarter after lowering the MA membership guide leaves us with low visibility into the outlook,” the bank said in its note.
Clover Health earnings
In its earnings call, CLOV said that it expects to generate revenues of $810-$830 million in 2021. Before the merger, the company had given a 2021 revenue guidance of $850 million. Notably, the regulatory arbitrage between SPAC mergers and IPO means that companies can provide forward estimates in a SPAC merger. However, in the traditional IPO companies are barred from providing forward guidance.
CLOV stock long term forecast
CLOV expects US Medicare Advantage spending to more than double between 2019 to 2025, and reach $590 million. The expected increase in Medicare Advantage is positive for companies like CLOV.
Also, the company has cash and cash equivalents of $685 million after the proceeds from the SPAC and the PIPE (private investment in public equity). The cash can take care of its near-term cash needs. Notably, like many other Reddit stocks like AMC Entertainment and GameStop, which raised money after the stock rose on the short squeeze, CLOV did not issue more shares.
Looking at the valuations, CLOV stock has an enterprise value (EV) of $5.5 billion. At the midpoint, it expects to generate revenues of $820 million in 2021 which means a 2021 EV-to-sales multiple of 6.7x. The company’s revenues are almost doubling every year and in 2022 it expects to post revenues of $1.72 billion which would mean a 2022 EV-to-sales multiple of 3.2x. The stock looks attractive after the recent sell-off and could be a good long-term investment at this price.
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