On Monday, CareMax Inc. (NASDAQ:CMAX) received a revised stock rating from Jefferies, moving from a previous position to a Hold rating. Alongside the rating change, the firm also adjusted the price target for CareMax's shares to $7.50, a significant increase from the former $1.50 target. The adjustment follows a detailed analysis of the company's financial model and market conditions.
The reassessment by Jefferies suggests that CareMax's management may not achieve their goal of reaching free cash flow (FCF) breakeven by the end of fiscal year 2024. This outlook is based on recent trends in utilization across the Medicare Advantage (MA) landscape.
The firm has also revised downward their Medicare Shared Savings Program (MSSP) savings and revenue estimates for fiscal years 2024 and 2025, citing a notable increase in the implied savings rate for FY23 and the potential difficulty in achieving further incremental improvements.
Despite the downgrade, Jefferies acknowledges the strategic shift by CareMax management to focus on near-term FCF generation through partial-risk and payment-for-quality affiliate MA deals within their MSSP and Steward physician base. This move is seen as a positive step, providing CareMax with a more capital-efficient growth pathway. The potential to expand these relationships to full-risk MA arrangements is also recognized as a valuable long-term opportunity.
Although a significant increase in FCF is still anticipated for FY24, largely driven by an expected MSSP payment of approximately $65 million in the third quarter, the firm's model adjustments now indicate that the FCF breakeven point will likely be pushed out to at least 2026.
Jefferies notes that their current model does not require additional funding through 2025, given CareMax's access to a $60 million delayed draw term loan (DDTL). However, the margin for error in financial projections is considerably narrower than before.
The new price target of $7.50 reflects 7.7 times the firm's updated FY25 EBITDA estimate. This revision takes into account the challenges posed by near-term utilization headwinds, a less clear FCF outlook, and a leverage profile that is significantly stretched, including an 11.1 times leverage inclusive of a $60 million DDTL draw based on the FY24 EBITDA estimate.
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