-$1.96
$7.47
bear -$1.96
base $4.09
bull $7.47
margin of safety $1.60
market price* $0.59
Business condition attached to the margin of safety
The Series A preferred's April 30, 2027 cash redemption right (about $452 million) is resolved, through refinancing, extension, a sale of the company or a settlement, at an effective cost of no more than about 11% a year and without a recapitalisation that hands most of the common's remaining value to the preferred holder or new lenders.
eHealth runs an online and telephone marketplace for US health insurance. Its licensed advisors mostly sell Medicare Advantage, Medicare Supplement and Part D drug plans; individual, family, small-business and ancillary cover make up the rest. Carriers pay a commission when a member enrolls and renewals for as long as the member stays. Humana, UnitedHealthcare and Aetna together provided a majority of 2025 revenue, Humana alone 35%. Revenue was $554.0 million in 2025. A support subsidiary in Xiamen, China maintains part of the technology platform; the sales are all American. How the accounting works. eHealth books its estimate of a new member's lifetime commissions as revenue on the day the member is approved, while the cash arrives over several years. The uncollected balance was $1,122.7 million at the end of 2025 and $1,007.6 million at June 30, 2026 (it peaks after the autumn enrollment season), and only about a fifth is due within a year. Carriers paid $375.0 million in 2025 and $370-385 million in every year since 2021. The balance grew in 2024 and 2025 because sales rose: new-member commissions were about $355 million in each of 2022 and 2023, when the balance was flat, then $439 million and $454 million. Collections lag sales by two to three years and have not caught up yet. The estimates have proved conservative: net revisions to past sales were upward in every year from 2019 to 2025, $263 million in total, with Medicare cohorts revised down only in 2021 and 2022 ($10.7 million combined). The 2024-2025 increases came from better retention, release of estimate cushions and higher commission rates. How we value it. Accounting profit treats commissions collected over years as if they were cash today. At our 6% rate a dollar of new-sale commission is worth about 87 cents when booked, and the existing balance, with more of its cash far off, about 79 cents. So we value two things: the existing book of commissions, and the selling operation after that time cost, stock compensation and platform spending. Reported owner earnings before preferred dividends had a median of about $33 million a year over 2019-2025, but once the time cost of what it sells is charged, the operation has not covered its costs: about $22 million short in 2024 and $9 million short in 2025, even crediting its record of upward revisions. The first half of 2026 brought lower volume: revenue fell to $121.6 million from $173.9 million and second-quarter Medicare approvals fell 46%, while cash operating costs were cut by roughly a quarter. The claims ahead of the common. H.I.G. holds Series A preferred stock issued in April 2021. From April 30, 2027 it can require redemption in cash at 135% of accrued value, about $452 million by our arithmetic. At June 30, 2026 the company had $101.0 million of cash and short-term investments and had drawn $114.6 million on a receivables-backed credit line costing 6.5 points over SOFR and maturing in December 2028. It cannot pay the redemption from cash. Whether it borrows against the book at rates like the credit line's or leaves the claim accruing at the preferred's 8%, carrying it until the book can pay costs more than 6%, so we value the claim at about $500 million today, roughly $15.60 per common share. Conversion does not help: the conversion price is $79.59. Base case. The existing book is collected with a further 5% of upward revisions, less than the record so far, worth about $839 million today. The selling operation continues at its post-cut size for ten years, falling about $15 million a year short of its time cost, between the 2025 result and our estimate for 2026. After about $40 million of tax (after using tax losses), the cost of the credit line including renewal, and the preferred's claim, about $131 million is left for the common: $4.09 per share. Nothing in the record shows the operation creating value, so we give none beyond ten years, and none to the employer (ICHRA) initiative, fee-based carrier services or the new enrollment-support arrangement with a large Medicare carrier, which have no reported earnings yet. Bear case. The 2024-2025 upward revisions reverse and carriers cut commissions on past sales, which the company says has happened before, together taking 8% off the book. Operations lose about $35 million a year against their time cost (the 2024 level without revisions) for five years before a wind-down costing $60 million. The company cannot meet the April 2027 redemption, breaches its $45 million minimum-cash covenant, which lifts the preferred's accrual to 10%, and pays the claim from collections around 2033. The company would then owe about $63 million more than it is worth, or -$1.96 per share. Bull case. Revisions continue at their 2019-2025 pace, adding 8% to the book; the cost cuts bring the operation within about $5 million a year of covering its time cost; and the preferred is refinanced at credit-line rates and repaid within five years. That gives $7.47 per share. What would make this wrong. The book is an estimate: each 5% change in what it finally collects moves value by about $1.25 per share, and each extra half-year of collection lag on new sales costs about $1.85. The terms on which the preferred is resolved are the largest swing factor; a sale of the company or a refinancing on better terms than we assume would lift every case. Changes since our previous analysis. The base case is little changed ($4.19 to $4.09), but for different reasons. We now charge the selling operation for the time it waits for its cash rather than counting accounting profit as cash, which lowers value. We credit the seven-year record of upward revisions to the existing book, which raises it. And we charge the cost of carrying the preferred beyond April 2027. We also found why the balance grew while collections stayed flat: the larger 2024-2025 sales have not yet turned into cash. The bear case rises from -$2.91 to -$1.96 because a recheck of the collection schedule does not support the much lower book value assumed before. The bull case falls from $10.08 to $7.47 because the operation's 2025 profit no longer counts at face value. Margin-of-safety price. The preferred's claim exceeds the value of the business ahead of it and can demand cash in April 2027, so price alone is not enough. The margin-of-safety price is $1.60 per share, and it applies once the redemption is resolved on terms that do not hand most of the book's value to the preferred holder or new lenders.