On Monday, Jefferies initiated coverage on Agilon Health Inc (NYSE:AGL) stock with a Hold rating. The analyst significantly reduced the price target to $6.50 from the previous target of $25.00.
"We share investor skepticism on FY24 guidance but see potential LT upside even if EBITDA falls short of the guide." said the analyst.
He noted that the company's performance in the fiscal year 2023 and ongoing uncertainties about cost trends could hinder investor confidence until the second half of 2024.
Compared to peers and Managed Care Organizations, Agilon Health has less visibility into cost trends. MCOs have indicated potential negative shifts in Medicare Advantage Medical Loss Ratio expectations, which were not fully reflected in Agilon Health's initial guidance for 2024.
The firm suggests that if there is a 1% incremental MLR, it could translate to approximately a $30 million hit to EBITDA in 2024, potentially necessitating further guidance adjustments.
Jefferies also mentioned that if Agilon Health ends up with slightly positive EBITDA for the fiscal year 2024, it could set the company on a path to achieve an EBITDA in the range of approximately $70-$80 million for fiscal year 2025. This projection is based on the assumption that the company's underlying growth trajectory remains strong, which could lead to a significant earnings inflection in subsequent years.
The coverage by Jefferies suggests that while there is potential for long-term upside, there are immediate hurdles that Agilon Health must overcome. The analyst emphasizes the importance of delivering clean financial results in the latter half of 2024 to rebuild investor trust.
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