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  • June 2020 (Revised October 2020)
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Muddy Waters vs. eHealth: The Debate of a 'Lifetime'

By: Jonas Heese and Cristo Liautaud
  • Format:Print
  • | Language:English
  • | Pages:33
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Abstract

In May 2020, an analyst was assessing eHealth’s performance. eHealth was an online / tele-sales broker of health insurance products. The stock had recently hit all-time highs, closing at a peak of $146 on March 4, 2020. But now, May 4, 2020, eHealth traded at $103. The recent fall had wiped nearly $1.0B from the company’s market capitalization because well-known short seller Carson Block had released a short-report on the company. Carson Block argued that eHealth’s management had undertaken “massive stock promotion.” In the report, Block said that eHealth’s adoption of the new revenue recognition standard – ASC 606 – inflated revenue and masked the fact that eHealth was losing money on each new policy that it sold.
Still, eHealth’s valuation remained elevated at 3.3x FY2021E Revenue, 21x FY2021E adjusted net income, even assuming away accounting uncertainty. In addition, the mean consensus share price target as of May 4, 2020 was $179.
Did the latest news provide a buying opportunity? Or was it best to avoid eHealth, even perhaps consider shorting the company?

Keywords

Revenue Recognition; Health; Insurance; Online Technology; Insurance Industry

Citation

Heese, Jonas, and Cristo Liautaud. "Muddy Waters vs. eHealth: The Debate of a 'Lifetime'." Harvard Business School Case 120-114, June 2020. (Revised October 2020.)
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About The Author

Jonas Heese

Accounting and Management
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Related Work
  • Muddy Waters vs. eHealth: The Debate of a 'Lifetime' By: Jonas Heese and Cristo Liautaud
  • Muddy Waters vs. eHealth: The Debate of a 'Lifetime' Spreadsheet Supplement for Students By: Jonas Heese
  • Muddy Waters vs. eHealth: The Debate of a 'Lifetime' Spreadsheet Supplement for Instructors By: Jonas Heese
  • Muddy Waters vs. eHealth: The Debate of a 'Lifetime' By: Jonas Heese
  • Muddy Waters vs. eHealth: The Debate of a 'Lifetime' By: Jonas Heese
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