JPMorgan downgrades Chamath Palihapitiya-backed Clover Health - and expects the stock to flatline over the next 16 months

• JPMorgan has downgraded its rating on Clover Health in the wake of its first-quarter earnings.
• The bank's analysts said the company faces a difficult market and could underperform as it expands.
• They slashed their December 2022 price target for the stock to $9, from $15 previously.

JPMorgan analysts have downgraded the stock of Clover Health after being underwhelmed by the healthcare company's first-quarter earnings.

The analysts, led by Lisa Gill, cut their December 2022 price target for the Chamath Palihapitiya-backed company to $9 from $15 previously. The stock was last down around 2.9% on the day at $9.00 in regular trading.

JPMorgan downgraded its rating of Clover Health to "underweight" from "neutral" in a note on Monday.

"We are downgrading shares of CLOV to Underweight from Neutral following 1Q21 results in which the company lowered most guidance metrics, including reducing the number of aligned beneficiaries under the direct contracting program in 2021 by 50%," the bank's analysts wrote.

"We think shares of other managed care companies offer a more balanced risk/reward profile," they added, although did not specify which companies.

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Clover Health went public in January after merging with Palihapitiya's Social Capital Hedosophia III special-purpose acquisition company, or SPAC. It closed at around $15.90.

The stock fell sharply in February after short-seller Hindenburg Research criticized the company. It then fell steadily to trade below $7 in May.

But Clover rebounded sharply in June, shooting above $20, when retail traders organizing themselves on Reddit snapped up shares in an effort to squeeze short sellers.

However, JPMorgan analysts said there are a number of risks ahead for Clover Health, at a time when the healthcare market is being shaken up due to the impact of COVID-19.

"CLOV aims to use its proprietary Clover Assistant (CA) point-of-care physician clinical management software to simultaneously deliver superior member benefits and industry leading profitability," the analysts said.

"Whether this 'thesis' can prevail will face an extreme test as CLOV expands exponentially."