Sales Sluggishness Likely To Continue For Benefitfocus

William Blair's Adam Klauber downgraded Benefitfocus Inc BNFT from Outperform to Market Perform, citing disappointing selling season, decelerating revenue growth and lack of near-term catalysts.

The revenue growth slowed down to 10 percent in 2017, from 26 percent in 2016 and it's likely going to be between 6 and 8 percent in 2018, said Klauber. The stock trades at 3x sales, but due to reduced growth outlook, it should now trade at 2x to 2.5x sales, the analyst said.

Klauber decided to decrease his revenue estimate for 2018 from $289 million to $272 million and his EPS estimate from $0.00 to -$0.28. The company did well in the jumbo market, but performance in the core large client market was well below the prior year's performance. The noise around health insurance could be a reason for underperformance, but there could also be some execution problems.

Klauber explained that he can't see a near-term catalyst for the stock, because larger employers make decisions in the middle part of the year, which means most client wins occur in the second and third quarter. The next opportunity to see constructive improvement in this segment's selling environment won't happen until next August.