On Tuesday, investment firm William Blair maintained a Market Perform rating on shares of U.S. Physical Therapy (NYSE:USPH), following the company's announcement on Monday of its plans to acquire a 50% equity interest in MSO Metro. The deal, valued at $76.5 million, will be financed through $75 million in cash and $1.5 million in common stock. It is slated for completion by October 31, provided all standard closing conditions are met.
The acquisition includes an earnout potential of up to $20 million. MSO Metro, which provides management services to 50 outpatient clinics, mainly in New York, is expected to serve as a platform for expansion in the state and neighboring regions. These clinics offer various therapies, including physical, occupational, and speech therapy, and extend physical therapy to home-based patients.
MSO Metro's current financial performance boasts $64 million in annual revenue and $12 million in adjusted EBITDA, setting the transaction value at approximately 13 times the adjusted EBITDA. The CEO of MSO Metro, who has been instrumental in growing the organization from 5 to 50 clinics since 2016, will continue to lead in an executive role after the acquisition.
U.S. Physical Therapy's strong financial standing, with $142.5 million in debt and $112.9 million in cash as of the second quarter of 2024, has positioned the company favorably to pursue such significant growth opportunities. This particular acquisition is noted as one of the larger transactions for the company in recent times and is expected to establish a significant presence in the New York market.
The transaction is seen as a strategic move for U.S. Physical Therapy, providing a foothold for further growth within the region. The valuation of the deal is deemed reasonable by William Blair, given MSO Metro's robust margin profile.
In other recent news, U.S. Physical Therapy, Inc. has been making significant strides. The company reported record-breaking clinic visits for Q2 2024, with an 8.5% increase in physical therapy revenues and an adjusted EBITDA of $22.1 million. Despite challenges such as rising labor costs and potential Medicare reimbursement rate reductions, the company has shown substantial growth and financial improvements.
U.S. Physical Therapy is also expanding its footprint through strategic acquisitions. The company recently acquired a 50% stake in a management services organization overseeing 50 physical therapy clinics, which generates approximately $64.0 million in annual revenue. Furthermore, the company expanded its operations in Pennsylvania by acquiring a 70% stake in a local practice with eight clinic locations, expecting to generate an estimated $5.5 million in annual revenues.
However, BofA Securities has revised its stance on U.S. Physical Therapy, downgrading the stock to Neutral from Buy due to concerns about increasing labor costs and slower-than-anticipated development of new locations. Despite these concerns, analysts project a full-year 2024 EBITDA between $80 million to $85 million.
To counter potential Medicare reimbursement rate cuts and address labor shortages, U.S. Physical Therapy is actively negotiating higher rates with commercial payers and investing in recruitment and school partnerships. These are some of the recent developments surrounding U.S. Physical Therapy.
InvestingPro Insights
U.S. Physical Therapy's (NYSE:USPH) recent acquisition of MSO Metro aligns with several key financial indicators and trends highlighted by InvestingPro. The company's revenue growth of 8.04% over the last twelve months, coupled with a 10.37% quarterly revenue growth, suggests a strong trajectory that could be further bolstered by this strategic acquisition.
InvestingPro Tips reveal that USPH has maintained dividend payments for 14 consecutive years, indicating financial stability even as it pursues expansion. This consistency in dividend payments, along with the company's ability to cover interest payments with its cash flows, suggests prudent financial management as it takes on this significant acquisition.
The acquisition's potential to enhance USPH's market presence is particularly noteworthy given that the stock is currently trading near its 52-week low, potentially presenting a value opportunity for investors. However, it's important to note that USPH is trading at a high earnings multiple, with a P/E ratio of 73.55, which investors should consider in light of the expected growth from this acquisition.
For readers interested in a more comprehensive analysis, InvestingPro offers 10 additional tips for USPH, providing a deeper understanding of the company's financial health and market position.
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