On Thursday, Evolent Health (NYSE:EVH) received reiteration of an Overweight rating and a $38.00 price target from Piper Sandler. The healthcare company is reportedly exploring a sale after receiving initial acquisition interest. Potential buyers may include private equity firms alone or in partnership with other entities.
Evolent Health, which specializes in value-based specialty care management, is considered a leader in a market with a $732 billion total addressable market (TAM). The company is praised for its collection of best-in-class assets, including its end-of-life care planning platform, Vital Decision.
Piper Sandler highlighted the company's Performance Suite's potential to deliver high, durable double-digit adjusted EBITDA growth over the next 36 months, based on its current contracted book.
The analyst also pointed to Evolent Health's pricing power, evidenced by recent price increases including a $60 million annualized rise announced in the second quarter of 2024. A notable case is the price adjustment with a major customer, FL Blue, in compensation for an acuity mix shift in the calendar year 2023. FL Blue's contributions to revenue are significant, as it is a customer accounting for more than 10% of Evolent Health's business.
Evolent Health's openness to a sale was underscored by comments from CFO John Johnson in April, indicating that the board is considering the best path for shareholder value creation. This could be through organic growth in the public markets or other avenues.
Piper Sandler expressed confidence that Evolent Health can achieve $317 million of adjusted EBITDA in the calendar year 2025, which would represent a 33% year-over-year growth compared to the midpoint of the calendar year 2024 guidance.
The company's stock responded positively to the news, rising by a mid-teens percentage, yet it trades at a multiple of 13-14 times the projected calendar year 2025 adjusted EBITDA, which the analyst suggests undervalues the company. The $38 price target is based on a 15 times multiple of the forecasted fiscal year 2025 adjusted EBITDA.
In other recent news, Evolent Health has been the center of attention due to potential acquisition talks, as reported by BTIG and RBC Capital Markets. Both firms have maintained a positive stance on the company, with BTIG maintaining a Buy rating and a price target of $45, and RBC Capital Markets maintaining an Outperform rating and a $42 price target.
This interest is driven by Evolent Health's significant revenue growth, strategic acquisitions, and its potential for consolidation amid recent mergers and acquisitions in the value-based care sector.
Evolent Health's second-quarter performance exceeded expectations, with the company raising its full-year revenue guidance to between $2.56 billion and $2.6 billion. The company also announced the strategic acquisition of Machinify Technology, which is expected to enhance operational efficiency and expand product offerings.
Furthermore, Evolent projects Q3 revenues between $615 million and $635 million and an adjusted EBITDA between $60 million and $68 million.
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