What’s Happening at Clover Health?
Investment Issues
The future looked very bright for Clover Health Investments, Corp., a Franklin, Tennessee-based company that operates as a Medicare Advantage insurer in the United States. Through its software platform, Clover provides preferred provider organization (PPO) and health maintenance organization (HMO) health plans for Medicare-eligible consumers. Focusing on Medicare Advantage plans, Clover uses internally developed technology to try to improve patient outcomes and provider payments.
Founded in 2012, Clover Health Investments, Corp. became public through a special purpose acquisition company (SPAC) backed by billionaire investor Chamath Palihapitiya. Palihapitiya described Clover as "the greatest growth opportunity" that he has seen. In October 2020, Clover announced its intention to become a public company through a merger with IPOC. It filed a registration statement and preliminary proxy statement/prospectus on a Form S-4 with the SEC and amended it in December 2020. The statement described Clover's growth as “strong and organic.”
However, shares of Clover Health Investments (NASDAQ: CLOV) fell 32.6 percent in February, according to data from S&P Global Market Intelligence, after short-seller Hindenburg Research targeted the company. Hindenburg said Clover Health was "a broken company" and provided a good enough argument to cause some investors to walk away from the stock. In its report, Hindenburg said that Clover was under investigation by the U.S. Department of Justice, its sales are driven by misleading marketing practices and that its signature tech product "deceives the healthcare system" and "poses a significant regulatory risk." While Clover denied the allegations, it acknowledged that there are some regulatory inquiries into its business.
Before the market opened on February 5, 2021, Clover filed a Form 8-K relating that the Securities and Exchange Commission (SEC) was performing an "investigation and requesting document and data preservation for the period from January 1, 2020, to the present, relating to certain matters that are referenced in the Hindenburg Research report." After this revelation, Clover common stock (CLOV) declined $0.53 per share, or 4.3 percent during intraday trading on February 5, and Clover warrants (CLOVW) fell $0.28 per warrant, or 8.2 percent during intraday trading on February 5.
Class action suits have been filed, alleging that throughout the Class Period, Clover “made false and/or misleading statements and/or failed to disclose that: (1) Clover was under active investigation by the DOJ for at least 12 issues ranging from illegal kickbacks, to marketing practices, to undisclosed related-party deals; (2) the DOJ's investigation presented an existential risk to Clover, since it derives most of its revenues from Medicare; (3) Clover's sales were driven by a major undisclosed related-party deal and misleading marketing targeting the elderly, not its purported "best-in-class" technology; (4) a significant portion of Clover sales were from an undisclosed relationship between Clover and a brokerage firm controlled by Clover's Head of Sales; and (5) as a result, the defendants' statements about its business, operations, and prospects, were materially false and misleading and/or lacked a reasonable basis.”
On March 2 shares of Clover Health Investments ended 12.8 percent lower. That could be attributable to the company’s announcement of its fourth-quarter results following the market close on March 1. The company reported Q4 revenue of $166.2 million, up 44 percent year over year but a little below the consensus Wall Street estimate. Clover posted a net loss of $81.6 million.
Clover Health Investments had its price target reduced by Citigroup from $19 to $13 in a note issued to investors during the first week of March, according to The Fly, adding that Citigroup’s price target would signal a potential upside of 52.76 percent from the stock’s previous close. JPMorgan Chase & Co. assumed coverage on shares of Clover Health Investments in a report, The Fly said.
Clover’s stock traded down $0.53 during trading during the first week of March, reaching $8.51. Its trading volume was 227,000 shares, as compared with its average volume of 19,102,094. It has a 1-year low of $9 and a 1-year high of $17.45. Clover has a fifty-day moving average price of $12.59 and a 200- day moving average price of $11.79.
In addition, a number of institutional investors and hedge funds added to or reduced their stakes in the company in recent months. Schonfeld Strategic Advisors LLC added to its position in shares of Clover Health Investments by 68.8 percent in the 3rd quarter.
Schonfeld Strategic Advisors LLC now owns 1,687,543 shares of Clover’s stock worth $21,027,000 after buying an additional 687,543 shares during the last quarter. Also, Arrowstreet Capital Limited Partnership purchased a new stake in shares of Clover Health Investments in the 3rd quarter worth about $6,220,000. Omni Partners LLP purchased a new stake in shares of Clover Health Investments in the 3rd quarter worth about $3,943,000. North Fourth Asset Management LP purchased a new stake in shares of Clover Health Investments in the 3rd quarter worth about $2,953,000. California Public Employees Retirement System purchased a new stake in shares of Clover Health Investments in the 3rd quarter worth about $2,358,000. Nearly half (49.05 percent) of the stock is owned by institutional investors.
The Motley Fool said that the biggest concern for investors was probably Clover Health's guidance for 2021. The company projects revenue between $820 million and $850 million. The midpoint of that range reflects year-over-year growth of around 24%, which is a lot lower than the 46% growth in 2020. The range is also below the 2021 revenue projection of $880 million in the company's investor presentation from October 2020.
According to Keith Speights of The Motley Fool, “Growth stocks like Clover Health can't afford to have a misstep. Any problems cause shares to fall -- and sometimes fall hard…Clover Health has experienced its fair share of problems in recent weeks. The stock sank after a well-known short-seller made allegations about the company in early February. Now the company's Q4 update has disappointed investors…The company probably needs to lay to rest the issues raised by the short-seller, Hindenburg Research, before the stock can rebound.”
Speights concluded, “There are a couple of key things to watch with Clover Health in the coming months. The company expects to launch its direct contracting program in April where the company can benefit from reducing Medicare expenditures. The increased widespread availability of vaccines could also help Clover Health by enabling it to make more direct in-person sales for Medicare Advantage plans.”