OSCR Investment Flash Update after Morgan Stanley 22nd Annual Global Healthcare Conference
ADD on pullback. Q2-24 data confirm a scalable cost curve and positive EBITDA; risk-adjusted upside outweighs subsidy noise and SEP revenue drag.
Key Drivers & Hard Data
Membership hit 1.6 M (+63% YoY); Q2 premium revenue $2.2 B (+46% YoY), lifting FY-24 guide to $9.0-$9.1 B.
Medical-loss ratio 79.0% (–90 bps YoY) despite SEP mix; SG&A ratio 19.6% (–260 bps YoY) on head-count leverage and LLM automation.
Adj. EBITDA $104 M (first profitable Q2, +$69 M YoY); FY-24 guide $160-210 M.
Cash & investments $2.27 B; holding-company liquidity >$150 M; regulatory capital trapped but first dividendable sub (FL) expected 2H-25.
+Oscar platform revenue still de-minimis (<1% of total) but two large-enterprise pilots in diligence (per Morgan Stanley fireside chat, 9/5/24).
Tech Edge Assessment
Oscar’s cloud-native claims stack ingests medical, pharmacy and device feeds in near-real time, enabling a rules+ML risk engine now parsing SEP members 60 days faster than legacy blues. API-first architecture lets +Oscar externalize enrollment, CRM and payment integrity as modular services—functionality incumbents built on 1990s mainframes cannot expose without costly rewrites. The LLM workflow bot, already deflecting 15-20% of service tickets, extends the lead.
Valuation Snapshot
At EV ≈ $2.3 B, OSCR trades on 0.25× NTM premium revenue and ≈ 12× NTM EBITDA (using mid-guide)—a deep discount to managed-care peers: UNH 0.68× / 9×, HUM 0.34× / 11-12×, ELV 0.6× / ~10×, CNC 0.10× / 5×, CLOV negative EBITDA.
FCF is still neutral, but our base-case DCF (10% WACC, 3% term growth) implies $32/sh (+35% upside) on 5% margin by ’27; bear at $18 (-20%), bull at $48 (+100%).
Catalysts (Next 6-12 mos)
2025 open-enrollment: targeting >20% growth via 150 → 180 rate-rational MSAs.
SEP taper + risk-adjustment catch-up adds ~$120 M revenue tailwind in 1H-25.
First state-based exchange “all-products” pilot (red-state legislature bill Q4-24).
+Oscar commercial launch decision with two Fortune-500 partners.
Florida subsidiary profitability unlock → potential $200 M dividends to HoldCo.
Bear Counterpoints & Rebuttal
Underwriting volatility: SEP newcomers spike ER/utilization. Rebuttal: SEP mix falling; risk-score velocity up 15 pts via chart-AI, recapturing RAF dollars in 2025.
Capital adequacy / trapped surplus: Statutory walls delay cash upstreaming. Rebuttal: First dividendable state 2H-25; reinsurance and cash-less swap lines provide interim flexibility.
Pricing wars if subsidies lapse: Minimum-MLR floors deter predatory pricing; Oscar can migrate subsidy-sensitive lives from Silver to Bronze while preserving zero-premium positioning (management modeling, 9/5/24).
Q/A Assessment
CEO Bertolini’s fireside commentary underscored disciplined expansion (“double markets to 300 by ’27”) and continuous AI cost-take-out. Tone confident, data-driven; no signs of adverse reserve development. Equity overhang from hedged long holders is mechanical, not fundamental.
Actionable Takeaway
Near-term share pressure from long/short delta offers attractive entry ahead of 2025 risk-adjustment uplift and cash-release milestones.