On Wednesday, Barclays (LON:BARC) made adjustments to its outlook on shares of Surgery Partners (NASDAQ:SGRY), a healthcare services company, by reducing the price target from $32.00 to $31.00. The firm maintained its Equalweight rating on the stock. The revision comes as Surgery Partners has encountered several financial challenges throughout the year.
Surgery Partners reported approximately $36 million in free cash flow year-to-date, which is roughly 25% of its informal target for 2024, set between $140 million to $160 million. The lower-than-expected free cash flow has been attributed to increased costs from transactions and integration, particularly following the acquisition of a surgical hospital in Milwaukee during the second quarter.
Additional pressures include a rise in payer denials and a slight impact on collections due to late-quarter hurricanes.
Despite these setbacks, Barclays notes that Surgery Partners is likely to experience an uplift in free cash flow as the company extends its working capital in the fourth quarter. Consequently, Barclays anticipates the year's free cash flow to be in the range of $115 million to $120 million.
The analyst from Barclays highlighted that Surgery Partners missed its free cash flow target in 2023 and is expected to fall short again in 2024. In response, the company has decided to move away from setting specific free cash flow targets, which have been a focal point for investors evaluating the company's potential for self-funded growth.
Surgery Partners has emphasized that the free cash flow targets do not accurately reflect the variability that is inherent in a business model that includes frequent acquisitions. Despite the challenges, the company remains focused on its operational and financial strategies moving forward.
In other recent news, Surgery Partners has reported a strong third quarter in 2024, with net revenue reaching $770 million, a 14% year-over-year increase. The company's adjusted EBITDA also saw a significant increase of 22%, achieving a margin of 16.7%. Despite disruptions caused by Hurricane Helene, Surgery Partners maintained operational continuity, witnessing growth in surgical case volume and same-facility net revenues.
The company also reported a 53% increase in total joint replacements and successful recruitment of over 230 new physicians in the third quarter. These developments have enhanced musculoskeletal procedure volumes and improved operating margins due to efficiency initiatives.
Looking ahead, Surgery Partners anticipates full-year net revenue and adjusted EBITDA to exceed $3.075 billion and $508 million, respectively. The company's long-term growth target of 2% to 3% was surpassed with a 4% same-store case growth year-to-date. These recent developments underscore Surgery Partners' resilience and adaptability in the face of challenges.
InvestingPro Insights
To provide additional context to Barclays' analysis of Surgery Partners (NASDAQ:SGRY), let's examine some key financial metrics and insights from InvestingPro.
Despite the challenges highlighted in the article, InvestingPro data shows that Surgery Partners has demonstrated revenue growth, with a 14.16% increase in quarterly revenue as of Q2 2024. This growth suggests that the company's core business remains strong, even as it faces headwinds in free cash flow generation.
An InvestingPro Tip indicates that analysts predict the company will be profitable this year, which aligns with the article's mention of potential improvements in free cash flow. This positive outlook is further supported by the expectation that net income will grow this year.
However, investors should note that Surgery Partners' stock price movements are quite volatile, as pointed out by another InvestingPro Tip. This volatility may reflect the market's reaction to the company's financial performance and strategic decisions, such as moving away from specific free cash flow targets.
For those interested in a deeper analysis, InvestingPro offers 7 additional tips for Surgery Partners, providing a more comprehensive view of the company's financial health and market position.
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