On Monday, Lake Street Capital Markets significantly reduced the price target for ModivCare shares (NASDAQ: MODV) to $10.00, a sharp decline from the previous $30.00 target, while reaffirming a Buy rating on the stock.
The stock, which has fallen 83% over the past year and currently trades near its 52-week low of $6.51, appears undervalued according to InvestingPro analysis. The revision follows ModivCare's announcement on Friday that it had withdrawn its financial guidance for the years 2024 and 2025. The company cited changes in its business and the broader market environment as reasons for this decision.
ModivCare disclosed that it had obtained $75 million in additional financing from some of its existing lenders, who also agreed to provide relief from financial covenants related to the company's debt ratios. With total debt standing at $1.26 billion and a concerning debt-to-capital ratio of 93%, this arrangement is expected to last from the fourth quarter of 2024 through the second quarter of 2025. Moreover, Coliseum Capital has committed to investing $30 million in exchange for new second lien senior notes due in 2029, pending shareholder approval.
The influx of capital is believed to be sufficient to maintain ModivCare's liquidity until at least mid-year 2025. This financial buffer is anticipated to give the company the flexibility to implement strategic actions, which may include the sale of assets. These measures aim to fortify ModivCare's financial standing, improve operational performance, and set the stage for long-term sustainable growth.
While the future financial outcomes for ModivCare remain uncertain, Lake Street Capital Markets has adjusted its forecasts for the company for the next two years. Despite the reduced visibility and lowered price target, the firm maintains its Buy rating, indicating a continued positive outlook on ModivCare's stock. InvestingPro subscribers can access 15+ additional investment tips and a comprehensive analysis of ModivCare's financial health, which currently rates as FAIR based on multiple financial metrics.
In other recent news, ModivCare Inc announced its third-quarter earnings, reporting revenue of $702 million and an adjusted EBITDA of $43 million. Despite a net loss of $27 million, ModivCare revised its adjusted EBITDA guidance for 2024 to between $170 million and $180 million. The company's Personal Care Services segment grew by 5%, and operational improvements were observed in the Non-Emergency Medical (TASE:PMCN) Transportation segment.
ModivCare also announced significant changes to its board, with two directors, Christopher S. Shackelton and Rahul Samant, stepping down. The vacancies were promptly filled by the appointment of Leslie V. Norwalk as the new Interim Chair of the Board and the addition of two new independent directors, Craig Barbarosh and Neal Goldman.
Looking ahead, the company projects a 10% increase in adjusted EBITDA for 2025, driven by membership growth and new contracts. ModivCare is also working on amending its credit agreement and managing a contract receivable balance of $110 million. These are recent developments reflecting the company's strategic positioning and operational efficiency.
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