On Wednesday, Jefferies, a global investment firm, adjusted its price target for Surgery Partners (NASDAQ:SGRY), a leading healthcare services company. The price target was revised downward to $40.00 from the previous $47.00 while the firm sustained a Buy rating on the stock. The adjustment follows the company's third-quarter financial results and subsequent conference call.
The analyst from Jefferies noted several factors influencing the stock's recent performance. A portion of the stock's decline was attributed to investor rotation, as some shareholders exited following unmet expectations of a company sale announcement. Additionally, there was investor dissatisfaction regarding the company's free cash flow (FCF) and management's decision to step back from providing guidance on that financial metric.
Despite these concerns, the analyst highlighted Surgery Partners' ability to finance mergers and acquisitions (M&A) and growth initiatives. The company can utilize its free cash flow and access to a revolving credit facility to support these activities. This point suggests confidence in the company's financial strategy and its capability to fund future expansions.
Furthermore, the analyst emphasized the company's strong position with its specialty surgical facilities. Surgery Partners' focus on these facilities was identified as a key asset. Additionally, it was noted that the company has limited exposure to potential site-neutral payment policies, which could impact reimbursement for medical procedures depending on the setting in which they are performed.
In summary, while there has been a reduction in the price target for Surgery Partners, Jefferies continues to view the stock favorably with a Buy rating. The firm acknowledges the challenges and investor sentiment following the third-quarter outcomes but sees underlying strengths in the company's business model and growth prospects.
In other recent news, Surgery Partners reported a robust third quarter in 2024, with net revenue climbing 14% year-over-year to $770 million. The company's adjusted EBITDA also rose by 22% to $128.6 million, achieving a margin of 16.7%. Despite challenges such as Hurricane Helene, the healthcare services company maintained operational continuity and saw a growth in surgical case volume and same-facility net revenues.
Barclays (LON:BARC) has revised its outlook on Surgery Partners, reducing its price target from $32.00 to $31.00 due to financial challenges the company has faced throughout the year. Despite this, Barclays expects an uplift in free cash flow as the company extends its working capital in the fourth quarter. The company's year's free cash flow is projected to be in the range of $115 million to $120 million.
Surgery Partners saw a 53% increase in total joint replacements and the successful recruitment of over 230 new physicians in the third quarter. These developments have improved operating margins due to efficiency initiatives. The company anticipates full-year net revenue and adjusted EBITDA to exceed $3.075 billion and $508 million, respectively, surpassing its long-term growth target of 2% to 3% with a 4% same-store case growth year-to-date.
InvestingPro Insights
Adding to Jefferies' analysis, recent InvestingPro data provides further context on Surgery Partners' financial position. The company's market capitalization stands at $3.22 billion, with a revenue of $2.89 billion over the last twelve months as of Q2 2024, showing a revenue growth of 8.55% during this period. This growth aligns with the analyst's confidence in the company's business model.
InvestingPro Tips highlight that Surgery Partners' stock price movements are quite volatile, which may explain the recent investor reactions noted in the Jefferies report. Additionally, while the company was not profitable over the last twelve months, analysts predict it will be profitable this year. This projection supports Jefferies' maintained Buy rating despite the lowered price target.
It's worth noting that Surgery Partners has demonstrated a strong return over the last five years, which could be attributed to its focus on specialty surgical facilities, as mentioned in the article. For investors seeking more comprehensive analysis, InvestingPro offers 7 additional tips for Surgery Partners, providing a deeper understanding of the company's financial health and market position.
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