The Medibank Private Ltd (ASX: MPL) share price has yet to recover lost ground from the COVID‐19 crisis, but that could change by next week.
The MPL share price is down by around 10% since the start of 2020 when the S&P/ASX 200 Index (Index:^AXJO) dipped 3.5%.
The private health insurer is at least holding up better than its rival. The NIB Holdings Limited (ASX: NHF) share price shed nearly a quarter of its value over the same period.
Medibank share price health could soon improve
But the Medibank share price might get a chance to play catch-up to the rest of the market as Morgan Stanley thinks it could rally by nearly 10% by Tuesday.
That's when the Australian Prudential Regulation Authority (APRA) is expected to release its private health insurance (PHI) statistics for the September quarter.
How APRA's data feeds into Medibank's stock valuation
The data will not only show the change in people with PHI but also the benefits paid. The first will provide insight into Medibank's revenue growth (or lack of), while the latter will lend insight into its profit margin.
"We believe membership growth direction and the number of episodes will drive market expectations on MPL's future earnings," said Morgan Stanley.
The deferment of elective surgeries due to the pandemic is a boon for PHI companies but a drag for hospital stocks like the Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price. This is well understood by the market.
3 possible outcomes for the MPL share price
But the revenue growth outlook for insurers is convoluted by the deferred increase in premiums as the industry moved to help its customers through the recession.
Morgan Stanley believes there is one of three possible outcomes on Tuesday. The data could show a more than 0.5% drop in PHI membership, a flat outcome with no more than a 0.5% change, or a more than 0.5% increase.
The broker rates the probability of the first outcome (contraction) at 10% and the second flat outcome at 20%.
Pumped and primed
Its base case is for memberships to increase, which would add 2% or more to Medibank's earnings per share in FY21.
More significantly, if this comes to pass, the broker reckons the stock will shoot up to $3.10 on the news.
The MPL share price is trading at $2.85 ahead of the market close.
However, if the data points to a 0.5% or worse decline, the stock could tumble to $2.50. In the flat scenario, the stock will hover around $2.80.
But Morgan Stanley is an optimist. It's recommending the Medibank share price as "overweight" (or "buy") with a price target of $3.10.
