On Friday, Stifel, a financial services firm, revised its price target for Accolade Inc. (NASDAQ:ACCD), a healthcare technology company, from $13.00 to $8.00, while reaffirming a Buy rating on the stock. The adjustment follows Accolade's announcement of first-quarter results for fiscal year 2025, which met expectations excluding performance guarantees.
The company has also revised its revenue guidance for the fiscal year ending in February 2025, lowering expected growth from the previously forecasted 16-20% to a new range of 11-15%. However, there was no alteration to the projected EBITDA, which remains at an increase of $15-20 million. Accolade's management is now focusing on profitability over growth due to the escalating costs of customer acquisition, particularly in the rapidly growing segments that are driven by usage fees, such as Value-Based Primary Care (VPC), Expert Medical Opinion (EMO), and others.
Usage fees, which account for approximately 30% of Accolade's revenue and are more variable, are anticipated to grow by 20%, a decrease from the previous 30%+ growth rate. Meanwhile, the core advocacy segment of the business, which is more recurring and represents 70% of revenue, is expected to maintain a growth rate of 9-10%, consistent with prior forecasts and compared to a 15% growth rate in fiscal year 2024.
Looking ahead, Accolade has guided to mid-teen revenue growth in the coming years, with profit margins expected to expand by 300-400 basis points annually. While Stifel finds the margin guidance reasonable, the firm has adopted a more conservative stance on revenue growth, modeling low double-digit (LDD) increases.
Following the release of the updated guidance, Accolade's stock experienced a 27% decline in after-market trading, valuing the company at approximately 4 times Stifel's estimated EBITDA for fiscal year 2026. The reduction in guidance has led to additional questions regarding the sustainability and secular growth of the company, with a "glass half-empty" view being understandable among investors.
The next significant indicator for Accolade's performance will be the third-quarter results, which will mark the end of the selling season. Despite the recent adjustments, Stifel continues to believe that Accolade has the potential to achieve double-digit growth and generate mid to high teen EBITDA margins over time, which supports the $8 price target, equivalent to 15 times the firm's estimated EBITDA for fiscal year 2026.
In other recent news, Accolade Inc. reported an 18% year-over-year revenue growth for the first quarter of fiscal year 2025, totaling $110.5 million. However, the company revised its full-year revenue outlook for 2025 to between $460 million and $475 million, indicating a growth of 11% to 15%. Analyst firms Canaccord Genuity, Needham, Truist Securities, and DA Davidson have all adjusted their price targets for Accolade, while maintaining positive ratings, following the company's revised earnings guidance.
Accolade's management has strategically decided to lower usage-based revenue projections to prioritize profitability, which has influenced its revised revenue forecast. Despite this, the company's EBITDA outlook for FY25 remains positive, ranging from $15 million to $20 million.
InvestingPro Insights
As Accolade Inc. navigates through its revised revenue guidance and aims for profitability, real-time data from InvestingPro provides a deeper insight into the company's financial health. With a market capitalization of $511.25 million, the company is positioned in a challenging market environment. The P/E ratio stands at -5.46, reflecting investor concerns about near-term earnings potential and aligning with analysts' expectations that the company will not be profitable this year. Additionally, the revenue growth of 14.09% for the last twelve months as of Q4 2024 indicates that while the company is growing, it has had to temper its expectations in line with its latest guidance.
InvestingPro Tips highlight the high shareholder yield and the fact that the company's liquid assets exceed its short-term obligations, suggesting a degree of financial stability. However, stock price volatility and a significant decline over the last three to six months mirror the market's reaction to the recent developments and guidance updates from Accolade. For investors seeking to make informed decisions, InvestingPro offers a suite of additional tips; there are 9 more tips available, which can provide further clarity on the investment potential of Accolade. Interested readers can take advantage of a special offer by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes these valuable insights.
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