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Meme Stock Clover Health Downgraded on Valuation Concerns

Clover Health, the latest participant to enter the meme-stock trading frenzy club, receives a downgrade from Bank of America on valuation concerns.

Clover Health  (CLOV) - Get Clover Health Investments Corp. Report, the latest participant to enter the meme-stock trading frenzy club, received a downgrade from analysts at Bank of America Thursday on concern its recent social media-fueled rally has boosted its valuation to extremes.

In a research update to clients, analyst Kevin Fischbeck cut his rating on Clover Health to underperform from neutral, saying the health insurance stock’s valuation was “no longer supported by fundamentals.”

Clover now trades at a 70% premium to Alignment Healthcare, its closest peer, “despite a similar growth profile and lower near-term margin trajectory,” Fischbeck wrote, adding that visibility for Clover’s outlook after a recent forecast cut on its Medicare Advantage membership growth remains low.

The downgrade comes after a social-media-fueled rally that has driven Clover Health up 88% this past week. Clover gave back some of its Reddit-driven gains Wednesday after opening at a fresh all-time high. 

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At last check, Clover Health shares were up 0.62% at $17.02. The stock has risen more than 66% over the past five trading days. It has gained 8.7% year to date.

Clover Health joins newer names like restaurant chain Wendy’s  (WEN) - Get Wendy's Company (The) Report alongside now-household-names like GameStop  (GME) - Get GameStop Corporation Report and AMC Entertainment  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report that continue to grab the attention of retail investors who are using messaging and chat boards to encourage each other to bid up the prices of stocks they see as undervalued. 

In Clover's case, Fischbeck pointed to the company's mixed first quarter earnings, which showed revenue rising 21% to $200.3 million but its medical loss ratio (MLR) - the percentage of premiums spend on claims and expenses - jumping to 107.6%.

Clover Health currently expects 2021 revenue of between $810 million and $830 million with a full-year MLR of between 94% and 97%. It also expects an adjusted loss of between $240 million and $190 million.