On Wednesday, Canaccord Genuity (TSX:CF) adjusted its stock price target for AdaptHealth (NASDAQ:AHCO), a provider of home medical equipment and related services, reducing it to $13.00 from the previous $14.00. The firm maintains a Buy rating on the stock despite anticipating a delay in the emergence of catalysts that could drive the share price higher.
The adjustment follows the recognition that AdaptHealth's Diabetes segment is facing greater challenges than management initially expected. The company's expansion of its salesforce earlier in the year did not yield the anticipated increase in new Continuous Glucose Monitoring (CGM) patient starts and resupply orders. In response, AdaptHealth is restructuring the management team and reporting structure within its Diabetes segment.
The firm is implementing customer service and resupply best practices from its Sleep segment in an effort to stabilize and revitalize the Diabetes business. The goal is to elevate growth to high single-digit market rates, a significant turnaround from the current year-over-year declines. Unfortunately, the revised downward revenue and adjusted EBITDA guidance are attributed to the Diabetes segment's underperformance.
Despite these challenges, AdaptHealth's Sleep and Respiratory segments continue to show solid performance. The company also maintains a steady free cash flow, is actively reducing its debt, and has updated its net leverage target to 2.5 times. Canaccord Genuity's analyst emphasized that while the company's Sleep and Respiratory segments remain strong, the issues in the Diabetes segment cannot be overlooked.
Investors are advised that patience will be necessary as the company works through these challenges. The firm's analysis suggests that there is still value in AdaptHealth's stock, as evidenced by a valuation of approximately 4.8 times the updated 2025 estimate. The Buy rating is reiterated, with an expectation that signs of improvement will be closely monitored in the coming periods.
In other recent news, AdaptHealth has been a focus of discussion following its recent quarterly earnings report and subsequent analyst commentary. The home medical equipment provider reported adjusted earnings per share of $0.15, falling short of the consensus estimate of $0.19. Moreover, its revenue of $805.9 million slightly missed Wall Street's projection of $809.32 million, although it did represent a marginal growth of 0.2% year over year.
Baird, a prominent analyst firm, maintained an outperform rating on AdaptHealth, but reduced the stock's price target to $14.00 from $16.00, citing concerns over the company's struggling Diabetes segment. Despite these challenges, Baird expressed cautious optimism for the company's future, acknowledging its strong balance sheet and cash flow improvements.
AdaptHealth also adjusted its full-year 2024 revenue guidance to a range of $3.22 billion to $3.26 billion, lower than its previous forecast and below analysts' expectations. In response to these developments, CEO Suzanne Foster expressed optimism about future growth opportunities and the company's ongoing investments.
The company also reported a net income of $22.9 million for the quarter, a significant improvement from the net loss of the same period last year, and completed the sale of certain custom rehab assets.
InvestingPro Insights
Recent InvestingPro data provides additional context to AdaptHealth's (NASDAQ:AHCO) current situation. The company's market capitalization stands at $1.2 billion, with a price-to-book ratio of 0.79, indicating that the stock may be undervalued relative to its book value. This aligns with Canaccord Genuity's view that there is still value in AdaptHealth's stock despite recent challenges.
InvestingPro Tips highlight that management has been aggressively buying back shares, which could signal confidence in the company's long-term prospects. Moreover, the stock's RSI suggests it is in oversold territory, potentially supporting Canaccord's maintained Buy rating. However, it's worth noting that AdaptHealth was not profitable over the last twelve months, although analysts predict the company will be profitable this year.
The company's revenue for the last twelve months was $3.26 billion, with a modest growth of 4.49%. While this growth is positive, it underscores the challenges mentioned in the article, particularly in the Diabetes segment. The EBITDA growth of 15.25% over the same period is encouraging, suggesting that despite setbacks, the company is improving its operational efficiency.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide further insights into AdaptHealth's financial health and market position.
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