Progyny Stock Should Deliver Superior Returns For Investors (NASDAQ:PGNY)

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Progyny, Inc. (NASDAQ:PGNY), a advantages administration firm specializing in fertility and family-building advantages options for U.S. employers, has reported yet one more report quarter, beating consensus estimates on each income and EPS. Its Q2 2022 income got here in at $195 million, a 52% bounce from $128.65 million a yr earlier.

The firm, which is already worthwhile on an EBITDA and internet revenue foundation, went public in October 2019 and has since this time moved from power to power by way of its operational and monetary efficiency. In its most up-to-date earnings name, administration raised the decrease finish of its Full Year steerage – a powerful indication that the optimistic progress trajectory will proceed.

The stock, nonetheless, has not stored up with the underlying enterprise’s sturdy progress trajectory. PGNY is down greater than 40% YTD, a transfer we consider is attributable to the broader sell-off in progress shares within the first half of 2022 reasonably than traders’ bearish evaluation of the corporate’s prospects.

PGNY YTD performance vs S&P 500

PGNY YTD efficiency vs S&P 500 (Seeking Alpha)

With yet one more report quarter, improved steerage for the complete yr, and the most important market indices steadily recovering from June lows, we consider PGNY will bounce again within the second half of 2022. It rallied 18% post-market following its stellar Q2 beat.

Predicting whether or not or not this earnings rally will maintain within the short-term is, plainly talking, a coin-toss. However, within the mid-to-long time period, we’re assured the stock will admire in worth because the underlying enterprise continues to develop quickly. This progress will primarily be fueled by the elevated demand for fertility therapy and family-building advantages amongst U.S. employers.

U.S. employers turning to fertility advantages

Infertility is a typical well being drawback within the US. Data from the CDC signifies that, amongst heterosexual girls aged 15 to 49 years with no prior births, about 1 in 5, or 19%, are unable to get pregnant after one yr of making an attempt. Furthermore, about 1 in 4, or 26%, of ladies on this group have issue getting pregnant or carrying a being pregnant to time period. Infertility additionally impacts males.

Treatment, whereas obtainable, is usually costly. Common remedies embody drugs, surgical procedure, intrauterine insemination (the place specifically ready sperm are inserted into the girl’s uterus), or assisted reproductive know-how (ART).

ART, which incorporates all fertility remedies during which both eggs or embryos are dealt with outdoors of the physique, is usually what most individuals confer with when speaking of fertility therapy. The commonest sort of ART is in vitro fertilization (IVF).

Because of challenges with affordability, employers have lately began together with fertility remedies corresponding to IVF of their worker well being plans. This development has picked up lately as corporations focus extra on variety, equity and inclusion and use fertility advantages as a instrument to face out in a aggressive labor market.

A survey by Mercer in 2021 discovered 42% of enormous corporations with 20,000 or extra workers lined IVF in 2020, in comparison with 36% in 2015. An additional 19% lined egg freezing, up from 6% in 2015.

PGNY, in its presentation on the 2022 J.P. Morgan Virtual Healthcare Conference, famous that half of all massive employers right this moment within the U.S. supply fertility advantages. In 2015, that determine was someplace between 25 – 30%. By subsequent yr, the determine shall be nearer to 75%. The knowledge used for these estimates was drawn from Mercer and Willis Towers Watson.

Number of US employers with fertility benefits growing

Number of US employers with fertility advantages rising (Progyny)

Evidently, the demand for fertility advantages amongst U.S. employers is rising, underlining the chance for PGNY. While legacy advantages administration corporations are mixing fertility advantages into their total well being package deal, none of them supply a specialised service in the identical as PGNY does.

An enviable consumer roster

Specialization has differentiated PGNY within the market, permitting it to construct an enviable consumer roster that features a few of the most famed corporations throughout a cross-section of industries.

PGNY client roster

PGNY consumer roster – 2022 (Progyny)

PGNY had 273 purchasers as of June 30, 2022, as in comparison with 182 purchasers as of June 30, 2021. As it’s now within the busy promoting season (Q3 and This fall are when corporations usually evaluation their insurance policy), we anticipate this quantity to extend.

“Our current pipeline size and commitments received to date continue to be favorable relative to the record level of activity that we experienced a year ago, which, we believe, demonstrates that employers are looking to provide the benefits that will meet the needs and expectations of their workforce, ” stated CEO Pete Anevski within the newest earnings name.

Growth in PGNY client base 2016- 2022

Growth in PGNY consumer base 2016- 2022 (Progyny)

The firm additionally claims to have a close to 100% consumer retention charge, which is spectacular. Its consumer base can be diversified by way of industries, with greater than 30+ industries lined in keeping with investor displays. This limits focus dangers.

Unique enterprise mannequin – delivers three options

PGNY has been an excellent success due to its distinctive enterprise mannequin, which concurrently delivers three options i.e. effectiveness of therapy, affordability and worth for employers, and robust incentives to fertility clinics.

Its flagship product is its fertility advantages resolution. Once a consumer indicators a contract, PGNY presents the consumer’s lined workers (referred to as members) entry to an actively managed community of high fertility clinics within the U.S. PGNY curates suppliers on a predetermined set of high quality measures and contractually obligates the suppliers in its community to submit outcomes for each therapy cycle for each affected person.

The firm bundles collectively a spread of fertility remedies corresponding to IVF and egg freezing and sells these bundles to employers, primarily based on their wants. The bundles, known as “Smart Cycle bundles”, are personalized to fulfill the varied wants of members whereas maximizing effectiveness and minimizing prices. The firm at present presents 19 completely different Smart Cycle therapy bundles which can be utilized in numerous combos relying on the member’s want. Members, in session with their Patient Care Advocates, or PCAs (in-house workers from PGNY), can select their most well-liked supplier clinics inside the firm’s community and make the most of the precise Smart Cycle therapy bundles essential for the therapy plan they decide all through their fertility journey.

PGNY additionally presents Progyny Rx, an built-in pharmacy advantages resolution that may solely be bought by purchasers that buy the fertility advantages options. Progyny Rx supplies members with entry to the medicines wanted throughout their fertility therapy. As a part of this resolution, the corporate supplies care administration providers, which embody formulary plan design, simplified authorization, help with prescription success and well timed supply of the medicines via its community of specialty pharmacies, in addition to remedy administration coaching, pharmacy assist providers and persevering with PCA assist.

PGNY makes money when members make the most of their advantages. It additionally makes money from its pharmacy advantages resolution. Of the $195 million income recorded in Q2 2022, $126.8 million or 65% derived from its fertility advantages resolution whereas 68.2 million or 34% got here from its pharmacy advantages resolution. By 2021, greater than 80% of latest purchasers additionally added on the Progyny Rx, the corporate notes in investor displays.

PGNY’s enterprise mannequin is efficient as a result of personalized bundles – versus, for instance, “x number of IVFs” in a generic plan – means therapy doesn’t cease midway however is designed to fulfill the exact wants of members (after analysis). The PCAs assist an excellent deal in guiding members via the journey.

The proven fact that PGNY actively manages its community and makes use of knowledge to display screen the standard and effectiveness of therapy additionally results in clinically superior outcomes as contracted suppliers have an incentive to carry out effectively and keep within the community in an effort to get repeat enterprise.

PGNY’s members get pregnant meaningfully sooner, expertise considerably fewer miscarriages, and have more healthy pregnancies and infants, as in comparison with nationwide averages.

PGNY current P/E is at the lower end of historical range

PGNY’s members obtain superior scientific outcomes vs nationwide common (Progyny)

  • Affordability for employers

Effective therapy interprets to affordability. This is for the plain purpose that ineffective therapy is money wasted since corporations nonetheless must pay even when there isn’t any profitable start.

Additionally, pissed off workers who must dip into their pocket as a result of a fertility plan is ineffective or is generic and has run out earlier than they may obtain the specified outcomes are prone to transfer to a different firm that gives one thing extra complete. By providing a complete service and clinically superior outcomes, PGNY has gained the hearts of employers – explaining its close to 100% retention charge.

Fertility clinics which might be included in PGNY’s community have an incentive to remain in it, given the repeat enterprise {and professional} status that comes with serving a few of the nation’s most prolific manufacturers. The proven fact that PGNY depends on a data-driven method to evaluate the effectiveness of therapy implies that fertility within the community clinics additionally will get free evidence-based advertising and marketing, which could be very advantageous within the medical area.

PGNY recently engaged Milliman, Inc., an impartial world chief in actuarial providers, to judge the methodology it makes use of to match its outcomes to nationwide benchmarks. Since 2016, PGNY has been the one profit resolution to publicly offering its outcomes knowledge.

A premium price paying for

We are bullish on PGNY however should admit that it’s not an affordable stock. It’s buying and selling at 58x P/E (TTM), 25x EV/EBITDA (FWD). This introduces some draw back dangers.

However, this premium is price paying for. To start with, the enterprise is rising quickly and members are more and more using the service, because the beneath snapshot from its earnings launch signifies.

Utilization of ART cycles growing year on year

Utilization of ART cycles rising yr on yr (Progyny)

PGNY estimates that there are 8000 massive self-insured employers within the U.S. that represent its goal market in the intervening time. It is but to seize even 5% of this. Moreover, as the range, equity and inclusion agenda takes stronger root, we’re prone to see authorities and union employers, universities and non-profit entities turning to gamers like PGNY. There are additionally alternatives outdoors the US. PGNY has barely scratched the floor but it has constructed a formidable model.

Also, PGNY has been capable of scale its comparatively younger enterprise profitably – one thing few younger corporations can do. Moreover, in comparison with different advantages corporations corresponding to Alignment Healthcare (ALHC) and Clover Health (CLOV) amongst different friends within the managed healthcare business, it enjoys nice margins. Importantly, it has grown with out debt.

PGNY is profitable than some larger benefits management companies

PGNY is worthwhile than some bigger advantages administration corporations (Seeking Alpha)

Finally, from a historic viewpoint, the stock is on the decrease finish by way of valuation.

PGNY current P/E is at the lower end of historical range

PGNY present P/E is on the decrease finish of historic vary (Seeking Alpha)

Despite a rocky first half of 2022, PGNY is in a gestational interval and may ship superior returns within the long-term consistent with the sturdy progress of its underlying enterprise. This could not occur in two or three quarters (the subsequent 9 months) however will materialize within the long- time period assuming the expansion development stays in place. We are lengthy with a 3-5 yr funding horizon and proceed to purchase at present ranges.



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