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Why is Clover Health Stock Falling?

Since June 1, Clover Health Investments Corp. (CLOV), a Medicare Advantage insurer, saw its share price increase around 186% to $22.15 on June 8. Since then, the stock has spiraled down 34% to close at $14.66 on June 14.

So, what is driving this huge volatility in Clover?

Beginning June, Clover caught the eyes of the Reddit stocks investors list, causing the stock to swing to unusual highs.

Clover’s business thrives on the number of members registered. In Q1, the company’s Medicare Advantage membership grew 8% to 66,300 year-over-year, with revenue climbing 21% to $200.3 million. (See Clover stock analysis on TipRanks)

The company also provided upbeat guidance for the full Fiscal year 2021, with membership expected to be in the range of 68,000 – 70,000 and revenue expected to fall in the range of $810 – $830 million.

Under the recently launched Medicare Direct Contracting program, the company expects to gain access to up to 200,000 Medicare beneficiaries.

On June 9, Clover inked new partnerships with home-based care providers Spiras Health and Upward Health. Clover aims to achieve high rates of program enrolment through direct collaboration with primary care providers.

While the company’s financials look sound, Clover had been hit by the famous short-selling firm Hindenburg Research in February. The firm published a report against Clover Health with some pretty serious accusations, including how the company and its promoter, Chamath Palihapitiya, misled investors when promoting the business.

While the Clover management has denied the accusations, the SEC has started an investigation into the case.  

Recently, Merrill Lynch analyst Kevin Fischbeck downgraded the stock to a Sell with a price target of $10, implying 31.8% downside potential to current levels.

Fischbeck stated, “Although we continue to believe that that the Clover Assistant provides value and helps reduce costs, and CLOV is likely to continue to grow faster than the MA market overall, the current growth trajectory does not support the valuation, and recent reductions in its membership growth targets for Medicare Advantage (MA) and Direct Contracting (DC), lower visibility.”

The stock has a Hold consensus rating based on 1 Buy, 1 Hold, and 1 Sell. The CLOV average analyst price target of $9.67 implies 34% downside potential to current levels. Shares have lost 6% year-to-date.

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