On Wednesday, Bernstein SocGen Group updated its outlook on agilon health Inc (NYSE: NYSE:AGL), increasing the price target to $3.15 from the previous $2.50, while retaining a Market Perform rating on the stock. The company's shares, currently trading at $2.80, have shown remarkable momentum with a 25.57% gain over the past week, according to InvestingPro data.
This adjustment follows the Centers for Medicare & Medicaid Services (CMS) announcement of the advance Medicare Advantage (MA) rate, which saw an increase of 2.23%. According to the analyst, this rate hike was significantly higher than anticipated and is a positive development for the MA industry, which has been experiencing margin contraction in recent years.
The analyst noted that the MA sector's shrinking margins have also negatively affected value-based care (VBC) stocks due to a reduced spending pool at MA plans, impacting expenditures for downstream companies. This challenging environment is reflected in agilon health's financial metrics, with InvestingPro data showing negative gross profit margins and an EBITDA of -$321 million for the last twelve months. Despite these headwinds, the company maintains a strong balance sheet with more cash than debt.
The recent funding boost is expected to be advantageous for risk-bearing VBC entities, including agilon health, as the analyst anticipates that higher premiums will make medical loss ratios (MLRs) more attainable. As agilon health's contracts are a percentage of premiums, the increased rates are likely to enhance revenues, thus potentially lowering MLRs, assuming other factors remain constant.
The analyst's perspective is that the rise in MA rates should benefit agilon health's financials and supports the increased price target. Despite this positive development, the firm's stance remains at Market Perform due to a preference for acquiring further confidence in the company's cash flow outlook. The analyst expressed a continued interest in the long-term prospects for agilon health, citing its operation in the attractive VBC market.
The industry's backdrop will become clearer with UnitedHealth Group (NYSE:UNH) set to initiate the Managed Care Organization (MCO) earnings season this Thursday. The forthcoming earnings reports are expected to provide additional insights into the utilization trends within the healthcare industry.
With agilon health's next earnings report scheduled for February 26, InvestingPro subscribers can access comprehensive analysis through the Pro Research Report, which provides detailed insights into the company's valuation, financial health, and growth prospects. InvestingPro analysis suggests the stock is currently undervalued, with additional ProTips available to subscribers.
In other recent news, Agilon Health has been the subject of multiple analyst actions. Needham initiated coverage with a Hold rating, citing concerns over high medical costs and issues with data visibility that have adversely impacted the company's margin performance. Citi upgraded Agilon Health's stock from Sell to Neutral, noting that the current stock price now fully accounts for the significant risks the company faces.
Macquarie also initiated coverage with a Neutral rating, recognizing Agilon Health as a leader in value-based care but highlighting challenges from high healthcare utilization and adverse claims developments. Bernstein SocGen Group started coverage with a Market Perform rating, awaiting signs of improved performance. Jefferies maintained a Hold rating but reduced the price target to $2.05, reflecting anticipation for more substantial measures to achieve profitability and positive cash flow.
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