Social assistance company ModivCare (MODV) received a downgrade at Jefferies from Buy to Hold on Thursday, voicing concerns about its guidance for fiscal 2024.
Simultaneously, the 12-month price target was lowered from $60 to $39.
“We downgrade MODV to Hold given our belief that investors will take a skeptical view of FY24 EBITDA guidance given the 10% shortfall vs. Street estimates (underscoring operating headwinds, incl. recent contract/lives attrition) and the steep ramp for the yr implied by its low Q1 EBITDA guide,” analysts at Jefferies said.
MODV plunged 13% in premarket trading.
The ambitious increase suggested by the company’s Q1 EBITDA forecast, which accounts for only 15% of the year's total EBITDA compared to the average of 24% over the past three years, raises doubts about management's capability to meet their earnings projections, the broker explained.
Although new contracts are expected to start contributing in Q2, the impact of Medicaid redeterminations is likely to moderate quarter-over-quarter EBITDA growth, extending the timeline for assessing ModivCare’s potential to escalate its earnings into the second half of 2024, Jefferies said.
“Given this earnings uncertainty and investor concerns surrounding cash burn (-$37MM in Q4) and balance sheet, MODV is now a "show-me" story that likely trades sideways NT,” analysts at Jefferies added.
MODV was also downgraded from Hold to Buy by Deutsche Bank analysts on Friday. Moreover, they reduced the target price to $40 from $60 and lowered EPS and revenue estimates.
“With several bumps on the road over the past year and struggles with FCF generation, we are unable to continue recommending MODV and downgrade to a Hold,” analysts at Deutsche Bank wrote.
“Our target multiple is moderately below MODV's historical average, which we believe is justified due to the uncertainty surrounding redetermination/utilization risks in NEMT, cash flow issues, and high leverage,” they said.