On Thursday, RBC Capital Markets reiterated its positive stance on Evolent Health (NYSE:EVH), maintaining an Outperform rating with a $42.00 price target. The firm highlighted the recent mergers and acquisitions (M&A) activity in the value-based care (VBC) sector, suggesting that Evolent Health stands out as a prime candidate for consolidation given its attractive valuation and position in the market.
Evolent Health has experienced a notable increase in its share price, rising 35% since its positive second-quarter update on August 9. Despite this surge, the company's shares were trading at 11.6 times its estimated 2025 EBITDA earnings before the analyst's remarks were published, moving to 13.2 times afterwards.
RBC's price target is based on a roughly 16.5 times multiple, aligning the valuation with management's long-term EBITDA growth target of over 20%.
The analyst from RBC also pointed out the logical nature of the potential interest in Evolent Health. TPG, an early investor in Evolent, also owned IPG, which Evolent acquired in 2022. Furthermore, Elevance and Clayton, Dubilier & Rice (CD&R) had established a strategic partnership earlier in the year.
Additionally, Elevance's June discussions at a competitor conference about expanding into specialty enablement areas, such as Oncology and Musculoskeletal (MSK), align with Evolent's core offerings, making the company an even more attractive M&A target.
The VBC space has seen considerable consolidation over the past two years, and Evolent Health's position as a remaining public entity in this space, coupled with its recent performance and strategic relevance, has drawn attention to its potential as an acquisition target.
The company's recent updates and the strategic movements of related parties in the industry underscore the rationale behind RBC's maintained rating and price target for Evolent Health.
In other recent news, Evolent Health reported significant revenue growth in its second-quarter earnings call. The healthcare company also announced its strategic acquisition of Machinify Technology, a move expected to enhance operational efficiency and product offerings.
Evolent's second-quarter revenue surpassed expectations, and the company is on track to meet its profitability targets by 2024. New rate agreements are anticipated to add approximately $60 million in annualized revenue, and the company has raised its full-year revenue guidance to between $2.56 billion and $2.6 billion.
Meanwhile, the acquisition of Machinify Technology is expected to drive operating efficiencies and expand Evolent's product offerings. The company also projects Q3 revenues between $615 million and $635 million and an adjusted EBITDA between $60 million and $68 million. These are the latest developments in Evolent Health's ongoing growth strategy.
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