On Friday, UBS initiated coverage on Afya Ltd . (NASDAQ:AFYA) stock, a company specializing in medical education. The company has a Neutral rating and a price target of $19.50.
The firm's analysis suggests that Afya's revenue growth is a central point of discussion, projecting the company to achieve an above-average growth rate of 12% through 2028, compared to the sector's 8%.
According to UBS, Afya's potential for growth could be driven by three main factors: inorganic expansion strategies, the approval of additional medical seats, and the expansion of continuing education and medical practice solutions.
Despite these opportunities, the current trading price of Afya's shares at 10 times the 12-month-forward price-to-earnings (PE) ratio indicates that the market has already accounted for the expected 12% compound annual growth rate (CAGR) from 2023 to 2028 and an average free cash flow (FCF) margin of 7%.
UBS's estimates, which forecast a slightly higher FCF margin of 8.7%, suggest that the present share price adequately reflects both the prospects for revenue growth and the associated execution risks.
This assessment underpins the Neutral rating provided by UBS for Afya's stock. The firm's outlook is based on the premise that the market has effectively integrated the company's growth potential into the current valuation.
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