Shares of Medicare Advantage insurer Alignment Healthcare partially recovered on Thursday after a whistleblower suit alleging accounting irregularities sparked a 17% drop on Wednesday.

The stock gained 5% as of Thursday's close. Stock analysts remained bullish on the company's prospects. Raymond James analysts said Thursday that while the suit creates an "overhang," the "fundamental risk appears manageable." Baird recommended "buying the dip," saying the initial selloff was "overdone," in a Wednesday evening note.

Compared with insurance industry giants in the Medicare Advantage market for seniors, Alignment is a relatively smaller player, providing healthcare benefits to nearly 285,000 members in five states. The stock has an average Buy rating and $24.92 target price, according to FactSet.

The lawsuit was brought by former executive Hakan Kardes, who said in the filing he joined Alignment as chief data officer in 2019, and was named to an expanded role of chief transformation officer months before his departure last year.

Kardes alleges the company misclassified approximately $8 million to $10 million worth of operating expenses as capital expenditures for fiscal year 2024. That allowed Alignment to claim its "first full year of positive adjusted Ebitda as a public company," the suit claims.

Alignment Healthcare, in a statement to Barron's, said the company "believes these allegations are wholly without merit, intends to defend itself vigorously and is confident it will prevail."

According to the suit, Kardes joined Alignment as chief data officer in 2019, and was named to an expanded role of chief transformation officer months before his departure.

In March 2025 Kardes said he reported the alleged accounting irregularities to Alignment CEO John Kao, and was met with retaliation afterward. A plan to further promote him was eliminated, the lawsuit says, and he had "no choice" but to resign in early April 2025.

Days later, Kardes alleges, a corporate securities filing announcing his resignation gave the impression he'd been involuntarily terminated, negatively impacting his reputation.

Alignment's statement on the matter put forward a different timeline. The company said Kardes resigned in April 2025 and expressed concerns the following month, in May 2025, "regarding the accounting treatment for certain 2024 capital expenditures."

The board's independent audit committee retained outside legal counsel and an accounting firm to conduct a review, Alignment said. The audit committee "concluded that Mr. Kardes' concerns were unfounded and that the Company's accounting was appropriate," according to Alignment's statement.

Alignment said it believes the claims now brought by Kardes are an attempt to "recoup the value of equity he forfeited when he resigned."

Legal counsel for Kardes at Sterlington told Barron's he "did the right thing" by bringing his concerns to senior leaders.

"Rather than working with Dr. Kardes to address those concerns, Kao and others retaliated against him and sought to end his career and bury the concerns he had raised," the law firm said in a statement. "He is now seeking justice for the harm he has suffered."

The insurer is scheduled to report second quarter results July 30.

"Fundamentally, we continue to believe the company is well-positioned into 2Q, with ALHC remaining our preferred [Medicare Advantage] pure-play exposure as industry cost trends decelerate," wrote Baird analyst Michael Ha.

Raymond James noted the lawsuit "is centered on capex capitalization, not medical cost trend, so it does not implicate the core earnings engine."

Still, analysts John Ransom and Parker Snure wrote, the suit presents "a clear fly in the ointment" for the stock: "We expect the lawsuit to remain a modest overhang until investors get better visibility into the dispute resolution."

Write to Catherine Dunn at catherine.dunn@dowjones.com

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July 09, 2026 16:58 ET (20:58 GMT)

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