Trupanion Has Large Opportunity In Growing $1B Pet Insurance Market, Raymond James Says In Bullish Initiation

The health insurance industry has been in flux as the debate over U.S. health care reform rages.

That's not the case with insurance for four-legged patients, according to Raymond James. 

The Analyst

Raymond James analyst John Ransom initiated coverage of Trupanion Inc TRUP with an Outperform rating and $46 price target.

The Thesis

The North American pet health insurance market is already a $1-billion market, but it is growing at an 18-percent compound annual rate and has reached just 1-percent penetration, Ransom said in the initiation note. (See the analyst's track record here.) 

Trupanion has been gaining market share in the space, growing subscription revenue at a 30-percent clip.

“Our investment thesis is that the company’s underwriting expertise, superior product design, superior payment technology (Trupanion Express), Territory Partner sales force model and continued improvement in operating leverage are defensible and will drive a sustainable trend of 20-percent-plus top-line growth and improving profitability," the analyst said. 

Although the pet insurance market is relatively new, overall pet spending has grown at a 6.3-percent rate since 1994. Millenials are now reaching peak pet-owning age and are spending even more on their pets than previous generations, Ransom said. 

Trupanion has differentiated its products by focusing on simplicity, offering easy-to-understand policies, a 10-percent copay and a customizable deductible, the analyst said. Raymond James forecast 24.5-percent revenue growth for the company in 2018 and is targeting for annual revenue to grow from $302 million this year to $442 million by 2020.

Price Action

Trupanion shares were down 2.35 percent at $36.49 at the close Friday.

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