On Tuesday, Wells Fargo (NYSE:WFC) adjusted its outlook on Accolade Inc. (NASDAQ:ACCD) shares, a healthcare solutions provider, reducing the price target to $10.00 from the prior $12.00 while maintaining an Equal Weight rating. The revision reflects a more cautious stance on the company's revenue outlook and a shift in valuation methodology.
The firm acknowledged Accolade's increased margin traction but projected a top-line progression that falls below the consensus leading into the fiscal year 2026. Wells Fargo has shifted part of its valuation approach to enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) from enterprise value/gross profit (EV/GP).
In the fiscal year 2024, Accolade saw about 68% of its incremental growth from usage-based fees. Access fees contributed to 32% of this growth, translating to an increase of approximately $16 million. However, it is estimated that Direct-to-Consumer (DTC) Plushcare, a part of Accolade's service offering, added about $23 million of incremental growth to the Access Fees segment.
This suggests that the enterprise-related Access Fees actually saw a decline of $7 million year-over-year in the fiscal year 2024. This decline is attributed to several factors, including customer churn, the sunset of the Tricare contract, and a shift towards usage-based fees.
The analysis by Wells Fargo indicates a nuanced performance within Accolade's revenue streams, with different segments of the business experiencing varying levels of growth. Despite the adjustment in the price target, the firm's Equal Weight rating suggests that the stock's current market price is believed to be in line with its valuation.
InvestingPro Insights
Accolade Inc. (NASDAQ:ACCD) has recently been the subject of revised expectations, and real-time data from InvestingPro provides further context to these adjustments. With a market capitalization of approximately $641.74 million, the company's financial health and stock performance offer insights into its current valuation. The P/E ratio, a metric that indicates how much investors are willing to pay for a dollar of earnings, stands at a negative -6.11, reflecting the market's sentiment about future earnings potential. The negative P/E ratio aligns with the company's performance over the last twelve months, indicating that Accolade has not been profitable within this period.
InvestingPro Tips highlight that Accolade's stock has experienced significant volatility, with a notable decline in the last week and over the past month, yet it also saw a large price uptick over the last six months. This volatility is crucial for investors to consider when evaluating the stock. Additionally, the company's liquid assets exceed its short-term obligations, which suggests financial stability in meeting its immediate liabilities. However, analysts do not anticipate the company will be profitable this year, which is an important consideration for future-oriented investors.
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