Alignment healthcare is a health insurance provider with a market cap of just under $5 billion. They primarily focus on offering Medicare Advantage plans to senior citizens.
Alignment generally takes on full downside risk, while large carriers often offload risk to physician groups. Higher than expected healthcare utilization/medical costs is bad for large carriers, but catastrophic for Alignment. The opposite is also true: if utilization softens it provides a massive earnings boost.
This next section is going to demonstrate how much of an effect utilization has on earnings for Alignment:
First, here are their most current full year 2026 guidance midpoints:
Revenue: $5.183 billion
Medical Cost: $4.548 billion
Gross Profit: $635 million
EBITDA: $88.5 million
Now here is a hypothetical scenario with medical costs coming in 2% lower than expected: (Medical costs are volatile and a 2% swing is not at all unusual for health insurance providers)
Revenue: $5.183 billion
Medical Cost: $4.457 billion
Gross Profit: $726 million
EBITDA: $179.5 million
A 2% surprise decrease in medical costs doubles EBITDA for the year.
Now back to the base guidance of $88.5 million EBITDA for 2026. Enterprise value is $4.52 billion, so forward EV/EBITDA is 51. That looks expensive but you also have to consider EBITDA and revenue growth. 2025 EBITDA was $46.1 million, so EBITDA growth guidance for 2026 is 92%. And revenue growth guidance (this is all organic revenue growth, not acquisitions) for 2026 is 32.5%.
And if you believe medical costs are going to come down 2% like I do, then you are looking at a health insurance company with a forward EV/EBITDA of 25 and very high revenue and membership growth.
For years the health insurance industry was plagued by higher than expected medical costs. As individual investors, we don’t have access to recent hospital admissions or other hard data for the past couple of months. But now there is a ton of indirect evidence that utilization is coming in lower than expected:
1. The big investment banks are generally all raising their price targets on health insurers. And unlike us, they do have access to recent hospital data and are often citing utilization trends in their reports. Here’s an example: [Morgan Stanley Raises UNH price target on utilization](https://www.investing.com/news/analyst-ratings/morgan-stanley-raises-unitedhealth-stock-price-target-on-utilization-93CH-4767498) Alignment has 10 upward price target revisions and 0 down in the past 90 days.
2. Alignment presented at a Goldman Healthcare investor conference on June 9th and completely shifted their cautious tone from all previous conferences in at least the past 2 years. John Kao (Alignment CEO) “Yes, we feel very, very confident and comfortable with our Q2 guidance, very comfortable with it.” James Head (Alignment CFO) “And I would say that your description of benign utilization environment is, I think, is accurate.” The Goldman host even backs them up and says Goldman’s own internal data is showing the same. Scott Fidel (Goldman Sachs): “most of what we've seen through all of our sort of very robust checks are seems pretty benign for the industry”
3. One of Alignment’s peers: Oscar Health (OSCR) also presented at the same conference on June 8th 2026. OSCR said utilization trends look moderately favorable but they were still waiting on the “Wakely Report” to come out at the end of June and then they would know for sure. Again as retail investors we don’t have access to this report which shows recent utilization. But just look at OSCR stock price on the day the report was supposed to have come out: June 30th. The stock went up 12% in 1 day on no publicly available news.
Indirect evidence is pretty overwhelming at this point that utilization is coming in softer than expected. I think we are going to get the first confirmation of this when UNH reports earnings next week. And that’s going to have a huge effect on ALHC’s 2026 earnings.
Position: About $60K worth of ALHC shares