On Friday, Deutsche Bank adjusted its stance on ModivCare Inc. (NASDAQ:MODV), changing the rating from Buy to Hold and reducing the price target to $40 from the previous $60. The revision follows ModivCare's fourth-quarter earnings, where the company reported EBITDA of $50.5 million, surpassing the consensus estimate of $49.8 million, yet falling slightly below the midpoint of its FY23 guidance. Revenue results were closely aligned with EBITDA, coming in 0.9% above expectations. This was primarily due to the Non-Emergency Medical Transportation (NEMT) segment outperforming, which helped balance the softer sales in personal care and remote monitoring services.
Despite the fourth quarter's performance meeting expectations, ModivCare's initial FY24 guidance was less optimistic, projecting EBITDA between $190 million and $210 million, which is below the consensus estimate of $211 million. The company attributed the lower guidance to several factors, including the redetermination process, which is estimated to impact earnings by $6 to $8 million and is about 70% complete.
Moreover, ModivCare has experienced significant contract losses in its NEMT segment, which account for a $10 to $12 million shortfall compared to consensus estimates. These losses are broken down into three main areas: client losses in state RFPs estimated at around $4 million; the end of a carve-out agreement with the New York Health Department, also estimated at $4 million; and the transition of some business from one of ModivCare's largest clients, believed to be UnitedHealth (NYSE:UNH), to a competitor, with an estimated impact of $9 million.
Looking ahead to the second quarter, ModivCare expects the negative effects of contract losses to be mitigated by new contract wins, which should result in a net positive impact by year-end. Additionally, cost-saving measures are projected to gain momentum in the second half of the year, leading to guidance for the second to fourth quarters that is 2.4% above analyst expectations, suggesting that the current challenges may be short-lived.
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