By Sam Boughedda
Raymond James analyst John Ransom initiated Cano Health Inc (NYSE:CANO) with an Outperform rating and $8 per share price target in a note Friday, sending the stock 10% higher.
Cano Health, a tech-enabled population health provider, has traded poorly over the past six months, down 70% from its all-time high. However, Ransom believes the current price represents an attractive entry point.
One of the core reasons for the analyst's positivity toward the stock is its profitability growth in an expanding market.
"CANO is a fast-growing value-based population health 'payvider,' expecting to add 54-59 medical centers (~45% growth) in 2022, and well positioned to benefit from growth in Medicare Advantage, while being profitable on an EBITDA basis vs. money-losing peers like OSH and VillageMD (owned by WBA). MA represents $350B of annual spend that is expected to outgrow traditional Medicare at a 7%+ CAGR through 2029 driven by increased adoption of MA, and CANO's current base of 119k at-risk MA members is only 0.4% of the market," wrote Ransom. "We expect CANO to grow revenue at a 30% CAGR from 2022-2024, while growing its MA membership and adj. EBITDA at a 20% CAGR."
The analyst also pointed to the company's differentiated and flexible growth strategy, explaining that it separates itself from its peers with its flexible build-buy-manage growth strategy that focuses on growing organically, acquiring primary care practices, and affiliating with primary care physicians.
"Our $8 price target is based on 1.0x our 2024E revenue and 13.6x our 2024E EBITDA, only modest premiums to its current 2023 multiples, and supported by our $10 base case DCF valuation. We believe, however, that investors will focus on both relative and absolute valuation vs. a longer-term DCF model while the market is in turmoil and interest rates are rising. While our $8 price target implies significant upside potential, uncertainty regarding CANO’s expansion outside of Florida, rising interest rates, and overall market valuations keep us from having a more constructive rating," concluded Ransom.