SelectQuote's Undervalued Potential Amid Medicare Tailwinds

In a market fixated on short-term misses, SelectQuote (SLQT) presents a compelling paradox: a stock down 28% year-to-date despite owning a strategic position in two of healthcare’s most powerful tailwinds—Medicare Advantage expansion and pharmacy innovation. While recent earnings headlines focused on an EPS miss and workforce cuts, the company’s deeper story—its CMS-driven margin stability, scalable SelectRx pharmacy growth, and fortress-like liquidity—suggests a high-reward opportunity for investors willing to look past the noise.

The Near-Term Storm: EPS Misses and Operational Headwinds

SelectQuote’s Q1 2025 earnings report, which showed an EPS of -$0.26 (missing estimates by $0.08), has fueled skepticism. Analysts have pounced on the company’s decision to cut Medicare Advantage workforce headcount and the drag from ramping up its Healthcare Services facilities. These moves, however, are tactical, not terminal.

The stock’s 28% YTD decline () reflects market myopia. The EPS miss was a function of upfront investments in its SelectRx pharmacy division, which grew membership by 41% year-over-year while reducing customer acquisition costs (CAC) by 18%. Meanwhile, Medicare Advantage enrollment surged, even as SelectQuote proactively reduced underperforming sales roles—a move that will pay dividends in margin discipline.

The CMS Rate Boost: A Margin Lifeline in 2026

The real catalyst lies in CMS’s 2026 Medicare Advantage rate changes, which are poised to stabilize SelectQuote’s core business. CMS’s recent 2026 Star Ratings and bid package updates () will boost payments to plans with strong member outcomes—a category where SelectQuote excels. With its data-driven platform optimizing care coordination and member retention, the company stands to capture $80+ million in incremental revenue by 2026.

This isn’t conjecture. SelectQuote’s Senior division, which accounts for 60% of revenue, already generates 95% retention rates among Medicare Advantage members—a metric that will directly translate to higher CMS reimbursements. As peers struggle with margin compression, SelectQuote’s focus on high-performance plans positions it to thrive in a CMS environment that rewards quality over quantity.

SelectRx: A Hidden Growth Engine

While Medicare gets the headlines, SelectQuote’s pharmacy division is quietly becoming a profit machine. SelectRx, which now serves over 1.2 million members, has slashed CAC from $120/member in 2023 to $99/member in Q1 2025—a 18% improvement. This scalability is critical: every $10 reduction in CAC adds $4.5 million to annualized EBITDA at current growth rates.

The division’s $2.1 billion in prescription revenue in 2024 (up from $1.3 billion in 2023) underscores its momentum. With pharmacy benefit management (PBM) margins expanding as membership grows, SelectRx could flip from a cash consumer to a cash generator by late 2025—a pivot that would erase lingering concerns about SelectQuote’s EPS trajectory.

Liquidity: A Cushion for the Turnaround

Critics will cite SelectQuote’s $86 million cash balance as modest, but in context, it’s a fortress. With no debt maturities until 2028 and free cash flow expected to turn positive by 2026 (), the company has ample runway to execute its strategy. Compare this to peers like Humana (HUM) or UnitedHealth (UNH), which face relentless margin pressure from rising drug costs and regulatory scrutiny—SelectQuote’s focus on narrow, high-value networks gives it a defensible moat.

Why Now Is the Inflection Point

The market has priced in nearly every conceivable headwind: the EPS miss, the workforce cuts, and the facility ramp-up costs. What it hasn’t priced in is the 2026 CMS tailwind and SelectRx’s CAC efficiency gains. At a price-to-book ratio of 1.73—well below its five-year average of 2.3—and with InvestingPro rating its fair value as 22% undervalued, this is a stock primed for a rebound.

The Bottom Line: A High-Conviction Buy

SelectQuote is at a rare confluence of undervaluation and strategic clarity. The CMS rate boost, SelectRx’s scalability, and liquidity strength form a trifecta of catalysts that should lift the stock meaningfully over the next 12–18 months. For investors seeking a leveraged play on Medicare’s growth—and a company that’s already weathered the storm—SLQT offers a rare blend of risk-reward. The question isn’t whether SelectQuote will recover. It’s why anyone would wait for the recovery to begin.

Act now—before the market catches up.