On Thursday, Canaccord Genuity adjusted its price target for Evolent Health (NYSE:EVH), reducing it to $44 from $45, while sustaining a Buy rating on the stock. The adjustment follows a review of the company's financial year 2024 and 2025 estimates to more accurately represent Evolent's gross margin trajectory.
The firm noted that Evolent had added a significant amount of Performance Suite business in the fourth quarter of 2023 and is expected to add more in the first quarter of 2024.
The new business typically records minimal gross margins during the first six months, prompting Canaccord Genuity to modify its gross margin expectations.
Despite this, the firm anticipates a sequential improvement in gross margins from the 18.3% reported in the fourth quarter of 2023, projecting continued growth into the second half of the year. This is based on the assumption that margins from this and past contract cohorts will mature towards the $300 million run rate adjusted EBITDA that Evolent aims to reach by the end of 2024.
Canaccord Genuity expects Evolent to achieve the margin expansion it previously included in its guidance, along with approximately $4 million in adjusted EBITDA per quarter from "go-get" business, necessary to hit the targeted run rate. The firm maintains its focus on Evolent as it progresses through 2024, citing a favorable environment for the company's growth.
This outlook is supported by managed care organizations that are reportedly experiencing higher medical cost trends and are likely to seek cost-containment solutions, which could benefit Evolent.
The firm forecasts a 24.4% revenue growth for Evolent in 2024, which is expected to be primarily organic, and a 30.6% growth in adjusted EBITDA. Canaccord Genuity reaffirms its Buy rating on the company's shares, with a price target of $44, reflecting confidence in Evolent's performance and market position.
InvestingPro Insights
As Evolent Health (NYSE:EVH) navigates its business trajectory, real-time data from InvestingPro offers a glimpse into the company's financial health and market position. With a market capitalization of $3.66 billion, Evolent's stock price movements have been noted for their volatility. Analysts, however, have revised their earnings upwards for the upcoming period, signaling potential optimism in the company's profitability. This is underscored by expectations of net income growth this year.
InvestingPro data highlights a substantial 45.26% revenue growth over the last twelve months as of Q1 2023, with a gross profit margin of 23.45%. Despite operating at a negative P/E ratio, the company's EBITDA growth is impressive at 181.98%, indicating significant improvements in earnings before interest, taxes, depreciation, and amortization. Additionally, Evolent is trading at a high EBIT and EBITDA valuation multiple, which may reflect market expectations for its future profitability and growth.
For investors considering Evolent's potential, two InvestingPro Tips are particularly noteworthy: the company does not pay a dividend, which may influence investment decisions for income-focused portfolios, and it has been recognized for a strong return over the last five years. For those interested in a deeper analysis, InvestingPro offers several additional tips on Evolent Health, which can be accessed with an exclusive offer. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enriching your investment strategy with informed insights.
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