On Wednesday, BofA Securities adjusted its stance on Option Care Health (NASDAQ: NASDAQ:OPCH), downgrading the stock from Buy to Neutral and reducing the price target significantly to $29 from the previous $43. The decision follows the company's cautious stance on its 2025 outlook, particularly concerning potential gross margin pressures on Stelara, a key product in its portfolio.
Option Care Health's recent financial results were on par with expectations, and the 2024 EBITDA forecast remains largely unchanged despite current supply shortages. However, the company has expressed concern over the 2025 outlook, citing the possibility of material pressure on gross margins for Stelara. Negotiations are ongoing regarding the planned changes, but the company has not been able to determine the potential impact, leading to a sense of uncertainty.
The analyst from BofA Securities has slightly lowered the 2024 EBITDA estimate due to supply shortages and has projected lower figures for 2025/26, assuming gross margin pressure. The downgrade to Neutral reflects this uncertainty surrounding the company's 2025 EBITDA.
Despite this, the analyst anticipates that Option Care Health will maintain its long-term top-line growth, noting that Stelara represents the last of the significant branded products in the company's portfolio, which may reduce the risk of additional biosimilar switches.
The new price objective of $29 is based on a revised multiple of 12.2 times the projected 2025 adjusted EBITDA, a decrease from the prior multiple of 16.8 times. This adjustment accounts for the risks to the company's financial estimates. In contrast, the exposure of BTSG to Stelara is minimal, representing only 0.5% of revenue, leading the analyst to reiterate a Buy rating for BTSG.
In other recent news, Option Care Health Inc. reported a robust third quarter performance for 2024, demonstrating a 17% revenue increase due to organic growth initiatives. Despite facing supply chain disruptions and the impact of Hurricane Helene, the company managed to maintain a strong cash flow, ending the quarter with $483 million in cash.
Option Care Health also reported an adjusted EBITDA reaching $115.6 million, with 2024 revenue expected to be between $4.9 billion and $4.95 billion. The company's management is actively exploring capital deployment strategies, including share repurchases and potential mergers and acquisitions.
Key developments include the exit of a major infusion provider from certain therapies, presenting growth opportunities for Option Care Health. Management also expressed optimism about the pipeline and strategic partnerships, focusing on rare and orphan drugs, oncology, and infusion therapies.
However, challenges remain, such as IV bag shortages due to supply chain issues which affect new patient onboarding and acute therapy sectors. Additionally, the Inflation Reduction Act's drug pricing changes are expected to impact financial results in 2025.
InvestingPro Insights
Recent InvestingPro data provides additional context to Option Care Health's (NASDAQ: OPCH) current situation. Despite the downgrade from BofA Securities, the company maintains a P/E ratio of 20.04, suggesting it's still valued at a moderate level relative to its earnings. The company's revenue growth of 11.07% over the last twelve months and 14.79% in the most recent quarter indicates ongoing expansion, aligning with the analyst's expectation of continued long-term top-line growth.
InvestingPro Tips highlight that Option Care Health has been profitable over the last twelve months, with analysts predicting continued profitability this year. This supports the company's financial stability despite the concerns raised about future gross margins. Additionally, the stock is trading near its 52-week low, which may present an opportunity for investors who believe in the company's long-term prospects.
It's worth noting that InvestingPro offers 7 additional tips for Option Care Health, providing a more comprehensive analysis for investors considering the stock in light of recent developments. These insights can be particularly valuable given the uncertainty surrounding the company's 2025 outlook and the potential impact of Stelara's gross margin pressures.
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