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Why GoHealth Stock Was Slammed Today

By Eric Volkman – Jan 5, 2022 at 11:43AM

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An analyst at a prominent bank turns quite bearish on the insurance broker.

What happened

A victim of the dreaded double downgrade, GoHealth (GOCO 3.12%) was far from a healthy stock on Wednesday. Shares of the Medicare-plan marketplace tanked by nearly 22% on the day, as investors took a new, downbeat analysis to heart.

So what

The downgrade came from Bank of America (BAC -1.29%) Securities analyst Michael Cherny, who knocked his recommendation on GoHealth stock all the way down from buy to underperform (i.e., sell). Cherny also put his price target on the guillotine, chopping it to $3.50 per share from $7.50.

Medical professional storing swab sample.

Image source: Getty Images.

In a research note, the prognosticator said that his change in recommendation was due in no small part to lower anticipated profitability growth. He added, "We would note this appears somewhat punitive although given the ongoing mismatch between profitability and cash flow (due to the upfront recognition of commissions)."

GoHealth's go-to business is Medicare Advantage plans. These are the policies offered by insurers that are basically "enhanced" versions of the government's existing Medicare programs. The busy period for Medicare ended recently, with the latest annual open-enrollment period for the program closing on Dec. 7.

Now what

It's understandable that investors are sensitive to bad news about GoHealth, as the company has struggled of late. In recent quarters, its net loss has been deeper than anticipated by analysts, at times substantially so.

But not everything is gloom and doom for the healthcare company. In all three 2021 quarters reported so far, for instance, the company beat expectations for revenue. And in the third quarter, it significantly narrowed its net loss to slightly more than $20 million, versus the $56-million-plus shortfall in the prior-year quarter.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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