TriNet Earnings: Near-Term Outlook Sours Amid Rising Insurance Costs; Fair Value Estimate Lowered

We lower our fair value estimate for narrow-moat TriNet to $125 per share from $150 following mixed third-quarter results and disappointing near-term guidance. TriNet continues to grapple with rising insurance costs on elevated healthcare utilization and cost inflation, weighing on profitability. While we expect such costs to be passed through to customers over the medium term via quarterly repricing, our updated valuation now factors in near-term margin pressure. We also factor in softer top-line growth on muted hiring activity within the base and new customer acquisition pressure. TriNet shares cratered a sharp 17% post release as the firm's adjusted earnings per share of $1.17 for the quarter came in line with guidance but fell below consensus expectations of $1.32. Nonetheless, TriNet continue to screen as attractive on a risk-adjusted basis, and we believe investors are excessively spooked by near-term headwinds.