BofA Downgrades Alignment Healthcare After CMS Cuts Star Rating on Key California MA Contract

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Summary · why it matters

BofA Securities downgraded Alignment Healthcare to Neutral from Buy on Friday after CMS lowered its Star Rating for one of its major California Medicare Advantage contracts to 3.5 stars from 4. The bank cut its price target to $9 from $25, roughly 19% upside based on the Oct. 9 close. BofA noted that Alignment Healthcare went from having all of its members in plans with at least 4 stars to just 25%, with the important California contract H3815 responsible for 75% of the managed care company's MA membership. Because contracts rated below 4 stars are not eligible for bonus payments from CMS, analyst Kevin Fischbeck said this potentially makes it more difficult to expand profitably into new markets, though he added there is a potential silver lining: if the company can move up its star rating on that one contract, there will be a meaningful lift to profitability in 2029. Alignment Healthcare closed down about 13%.

Impact on assets 4

Aging Population▼
Alignment Healthcare LLC
ALHC
▼ NegativeRegulationrelevance

CMS lowered the Star Rating on its key California MA contract to 3.5 stars, cutting bonus eligibility and prompting BofA's downgrade and PT cut to $9.

Financials▲
Bank of America Corp
BAC
± MixedCapitalrelevance

BofA Securities is the bank issuing the downgrade and price-target cut on Alignment Healthcare, not a subject of the news.

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