On Wednesday, Keefe, Bruyette & Woods adjusted its stock price target for MediaAlpha (NYSE: MAX), decreasing it to $22 from the previous $26 while maintaining an Outperform rating.
The firm's analyst cited the sustained strength of the Property & Casualty (P&C) sector as a positive factor that should counterbalance the potential negative effects of a Federal Trade Commission (FTC) complaint against MediaAlpha's Health business. Despite the issues faced by the Health segment, which contributes to 25% of earnings, the analyst believes the company's valuation remains attractive.
The analyst's outlook suggests that even in a severe scenario where the Health business is completely halted, the valuation metrics would stand at 8-9 times enterprise value to adjusted earnings before interest, taxes, depreciation, and amortization (EV/AEBITDA) for the fiscal year 2026 estimates.
The current valuation is perceived as compelling, with a 6-7 times EV/AEBITDA for the same period. InvestingPro analysis shows the company's current EV/EBITDA at 19.98x, with strong revenue growth of 72.47% over the last twelve months, suggesting significant potential for value creation.
MediaAlpha also faced downward pressure last week due to a Consumer Financial Protection Bureau (CFPB) proposal aimed at limiting activities of "data brokers." However, the analyst expects this will have a minimal impact on the company's operations. The analyst's revised adjusted EBITDA forecasts for the fiscal years 2024, 2025, and 2026 stand at $92 million, $118 million, and $130 million, respectively.
The reduction in the price target to $22 is justified by applying a 12 times multiple to the company's earnings, a decrease from the previously used 20 times multiple. This adjustment brings the valuation more in line with the historical average multiples, which range in the low-to-mid-teens, and reflects the company's demonstrated earnings power.
InvestingPro's Fair Value analysis indicates that MediaAlpha is currently undervalued, with analyst targets ranging from $13 to $30, suggesting significant potential upside from current levels.
In other recent news, MediaAlpha has been under the spotlight due to a series of developments. The company reported a strong performance in its third quarter of 2024, with a record transaction value of $451 million and an adjusted EBITDA of $26.3 million.
For the fourth quarter, the company projects a transaction value between $470 million and $495 million, revenue ranging from $275 million to $295 million, and an adjusted EBITDA between $29.5 million and $32.5 million.
However, MediaAlpha is also facing scrutiny from the Federal Trade Commission (FTC) over alleged violations related to advertising, marketing, and data practices. The FTC staff is seeking both injunctive and monetary relief, as well as civil penalties from MediaAlpha. The company has cooperated fully with the FTC's investigation.
RBC Capital Markets has adjusted its outlook on MediaAlpha, reducing the price target to $20 from $23 while retaining an Outperform rating on the stock. The decision to lower the price target is attributed to a reduced target multiple, which aims to account for the near-term uncertainties stemming from the FTC settlement.
Despite the ongoing FTC concerns, RBC Capital sees the company's fundamentals as very strong and maintains confidence in the robust recovery of the Property and Casualty market.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.