On Wednesday, Truist Securities reiterated their Buy rating on Phreesia Inc . (NYSE: NYSE:PHR) with a steady share price target of $35.00.
The firm's focus was on the potential impacts of the Change Healthcare (NASDAQ:CHNG) disruption, which had previously affected R1 RCM (NASDAQ:RCM, Hold), noting a few weeks ago an earnings miss and guidance cut primarily due to this issue.
The analyst from Truist Securities highlighted the distinct differences between the business models of R1 RCM and Phreesia.
While R1 RCM faced challenges due to a modular customer's bankruptcy and shortfall in incentive fees, Phreesia's revenue streams are split between a Subscription business and utilization-based services such as Payment processing fees and Network (LON:NETW) solutions.
The Subscription business, which accounts for half of Phreesia's revenues, offers high visibility, which may mitigate some of the impact from the Change Healthcare disruption.
It was also noted that Phreesia had taken proactive measures by moving the majority of its volumes to backup and alternative clearing houses, which is expected to minimize disruption to its Payment processing fees and Network Solutions businesses. Despite the Change Healthcare issues, there has been minimal overall utilization impact reported.
Phreesia's management has previously stated that the disruption did not materially change the selling environment. However, there is still some uncertainty regarding whether this disruption may have distracted providers and could potentially delay the implementation of Phreesia's solutions, possibly pushing some implementations to later in the year.
Reflecting a cautious stance, the analyst's expectations for Phreesia include 105 provider adds in the first quarter of the fiscal year 2025, which is a moderation from the quarterly average organic net adds of 158 in the fiscal year 2024. The firm will continue to monitor the situation for any further developments that could affect Phreesia's performance.
InvestingPro Insights
While Truist Securities maintains a positive outlook on Phreesia Inc. (NYSE: PHR), the InvestingPro data and tips provide additional context for investors considering the company's stock. Despite the challenges from the Change Healthcare disruption, Phreesia's market capitalization stands at a robust $1.3 billion, reflecting investor confidence. The company's revenue growth remains strong, with a 26.84% increase over the last twelve months as of Q4 2024, and a gross profit margin of 65.19%, indicating healthy profitability on its services.
However, analysts on InvestingPro do not anticipate Phreesia will be profitable this year, and the company operates with a moderate level of debt. The absence of dividend payouts might also be a consideration for income-focused investors. With a large price uptick of 42.29% over the last six months, Phreesia's stock has shown significant volatility, which could represent both an opportunity and a risk depending on market conditions and investor sentiment.
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