On Thursday, Jefferies made a significant adjustment to its stance on Option Care Health (NASDAQ: NASDAQ:OPCH) stock, downgrading it from Buy to Hold and slashing the price target to $26.00 from the previous $38.00. The firm cited ongoing uncertainties regarding the pricing of the drug Stelara as the primary reason for the change. This uncertainty is expected to affect the stock's performance in the near term, keeping it within a certain trading range.
The analyst from Jefferies expressed concerns about the drug's pricing dynamics, which are anticipated to continue affecting the company over the coming months. The pricing issues have led to a considerable margin compression for Stelara, prompting the firm to revise its gross profit assumption for the drug. As a result, the analyst has reduced the Stelara gross profit estimate by half, which translates to an approximate 5% reduction in the company's expected EBITDA for 2025.
The downgraded outlook is also based on a lower visibility to the company's underlying growth. The Jefferies analyst believes that due to the reduced clarity, the valuation of Option Care Health is likely to remain at approximately 11 times enterprise value to EBITDA (EV/EBITDA) over the next twelve months.
This reassessment by Jefferies reflects a more cautious view of Option Care Health's financial prospects, particularly in relation to its earnings before interest, taxes, depreciation, and amortization. The company's stock is now expected to perform differently than previously forecasted, with the new price target representing a notable decrease from the earlier valuation.
In other recent news, Option Care Health has been downgraded to Neutral from Buy by BofA Securities, which also lowered the price target to $29 from $43. This decision follows Option Care Health's recent financial results and their cautious outlook for 2025, particularly regarding potential gross margin pressures on Stelara, a key product. Despite supply shortages, the company's 2024 EBITDA forecast remains largely unchanged, but concerns over the 2025 outlook have led to a sense of uncertainty.
Recent developments include strong third-quarter performance for 2024, with a 17% revenue increase due to organic growth initiatives. The company also reported an adjusted EBITDA reaching $115.6 million, with 2024 revenue expected to be between $4.9 billion and $4.95 billion. Despite challenges such as supply chain disruptions, Option Care Health ended the quarter with a robust $483 million in cash.
Option Care Health is actively exploring capital deployment strategies, including share repurchases and potential mergers and acquisitions. The exit of a major infusion provider from certain therapies presents growth opportunities for the company. However, challenges like IV bag shortages and the Inflation Reduction Act's drug pricing changes are expected to impact financial results in 2025.
InvestingPro Insights
The recent downgrade by Jefferies aligns with several InvestingPro metrics and tips for Option Care Health (NASDAQ: OPCH). The stock's recent performance has been challenging, with InvestingPro data showing a 20.87% decline in the past week and a 24.76% drop over the last month. This downward trend is reflected in an InvestingPro Tip indicating that the stock is trading near its 52-week low.
Despite these short-term challenges, Option Care Health maintains a solid financial foundation. The company's revenue for the last twelve months as of Q2 2024 stands at $4.59 billion, with a healthy revenue growth of 11.07%. Additionally, an InvestingPro Tip suggests that the company has been profitable over the last twelve months, with analysts predicting continued profitability this year.
The current market capitalization of $4.03 billion and a P/E ratio of 25.64 suggest that investors are still pricing in growth expectations, albeit more conservatively following the recent downgrades. For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips that could provide valuable insights into Option Care Health's future prospects.
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