On Monday, BofA Securities initiated coverage on Surgery Partners (NASDAQ:SGRY) shares, trading on NASDAQ under the ticker SGRY, with a Buy rating and set a price target at $30.00. The firm has shifted its stance from No Rating, indicating a positive outlook beyond mere deal speculation.
Since there has been no news on a potential transaction since July 2024, and the stock's current price is below the level it was before any deal speculation began, the analyst believes the stock's current valuation does not reflect its fundamental strength.
The decision to rate SGRY as a Buy is based on the industry's strong tailwinds and the stock's relatively low valuation. Surgery Partners is currently trading at a multiple of 10 times EBITDA less NCI (Net Corporate Income), which is under the historical average of 13.7 times and below the 5-year range of 11-20 times. This valuation is seen as depressed, presenting a potential opportunity for investors.
The $30 price objective is derived from a 12 times multiple of the company's projected 2025 EBITDA less NCI. This valuation is on the conservative side of the historical range to account for cash flow concerns. Nonetheless, it represents a premium compared to hospital stocks.
The analyst notes that Ambulatory Surgery Centers (ASCs) such as Surgery Partners are less affected by the uncertainties facing hospitals in 2025. Moreover, ASCs benefit from the ongoing trend of healthcare procedures moving to lower-cost settings, providing a clear advantage for the company.
The Buy rating reflects a confidence in Surgery Partners' ability to outperform within its sector, given the anticipated industry growth and its position relative to the broader market. The analysis suggests that the company is well-placed to capitalize on the shift towards more cost-effective healthcare solutions, despite the challenges that may arise.
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