UBS has reiterated its Buy rating on AdaptHealth Corp (NASDAQ: NASDAQ:AHCO), maintaining a price target of $13.00. The firm highlighted the company's stable fundamentals, market share gains, and consistent margins.
AdaptHealth's shift towards pharmacy in the continuous glucose monitoring (CGM) market, which now represents 20% of this market, has affected growth; however, the impact is now fully recognized by investors.
AdaptHealth's recent sale of its underperforming rehabilitation business, which was generating about $30 million in annual revenues and had a slightly negative effect on EBITDA, has led to minor adjustments in UBS's estimates. These changes also reflect an increase in investment spending starting in the third quarter. Management has indicated there are measures in place to counterbalance the investments in technology and labor.
The new CEO of AdaptHealth, Suzanne Foster, is set to enhance efficiency and customer satisfaction through technological advancements, potentially setting the company apart in the marketplace. The company's future performance is expected to be influenced by its ability to execute its strategies, generate organic growth, free cash flow (FCF), and reduce debt.
UBS forecasts that the 2024 estimated FCF yield to equity for AdaptHealth is significantly over 10%, and the operating environment is seen as largely free from the volatility experienced in the past two years.
AdaptHealth reported a steady performance in Q2 2024, emphasizing growth and strategic divestitures. The company's net revenue increased by 1.6% year-over-year, and adjusted EBITDA for the quarter was reported at $165.3 million.
Notably, AdaptHealth sold some of its custom rehab technology assets to National Seating and Mobility, which represented about 1% of enterprise revenue.
Furthermore, the company updated its full-year guidance, projecting net revenue to be between $3.255 and $3.315 billion, and adjusted EBITDA between $660 and $700 million. The company also noted significant growth in the sleep business following the resolution of supply constraints. AdaptHealth's contract with Humana (NYSE:HUM), covering over 1 million patients across 33 states, is a primary source of capitated revenue.
InvestingPro Insights
AdaptHealth Corp (NASDAQ:AHCO) has shown a mix of strategic initiatives and market performance that has caught the eye of investors and analysts alike. According to InvestingPro data, AdaptHealth currently has a market capitalization of approximately $1.23 billion. While the company's P/E ratio is not applicable, an adjusted P/E ratio for the last twelve months as of Q2 2024 stands at 13.36, suggesting a potentially reasonable valuation relative to earnings. Additionally, the company's price to book ratio during the same period is 0.81, which may indicate that the stock is undervalued compared to its net assets.
From a shareholder perspective, InvestingPro Tips highlight that AdaptHealth's management has been actively engaging in share buybacks, which can be a sign of confidence in the company's value. Further, the company is expected to transition to profitability this year, despite not having paid dividends in the recent past. With three analysts having revised their earnings expectations downwards for the upcoming period, investors may want to keep a close eye on the company's performance in the near term. For those seeking deeper insights, there are 9 additional InvestingPro Tips available for AdaptHealth, offering a comprehensive view of the company's financial health and future prospects.
AdaptHealth's recent activities, including the divestiture of its rehabilitation business and strategic focus on the CGM market, are reflected in its financial metrics. Revenue growth for the last twelve months as of Q2 2024 was 6.05%, signifying a steady increase. However, the stock has experienced a significant price drop over the last week, with a total return of -18.27%, which may raise concerns among investors. Yet, the six-month price total return shows a notable increase of 27.71%, indicating a potential rebound and investor optimism. With the next earnings date slated for November 5, 2024, market participants will be keenly watching for AdaptHealth's financial results and strategic direction under the leadership of CEO Suzanne Foster.
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