Goldman Sachs initiates coverage on Ardent Health stock with Neutral rating

Investing.com - Goldman Sachs has initiated coverage on Ardent Health Partners Inc (NYSE:ARDT) with a Neutral rating and a price target of $19.00. According to InvestingPro data, the company appears undervalued, with a P/E ratio of 6.32 and strong profitability indicators. The stock currently trades at $14.13, having declined 17% year-to-date.

The investment bank sees several positive factors in Ardent Health’s investment case, including significant growth opportunities in outpatient and ambulatory categories within existing markets, a sound financial position, and a discounted valuation. InvestingPro analysis confirms this view, showing an "GREAT" overall financial health score of 3.31, with revenue growth of 10% and a healthy gross profit margin of 57.76%.

Goldman Sachs also notes challenges in Ardent’s long-term investment thesis, describing certain elements as "unproven works-in-progress." The firm points out that Ardent has not announced any new joint ventures with non-profit health systems since going public, making it difficult to include new JVs in model forecasts.

The research note highlights that Ardent has already reduced its margin expansion targets since its IPO, with current objectives aiming to improve margins by 100-200 basis points over the next 3-4 years.

Goldman Sachs expresses concern about the potential earnings headwind from OBBBA, estimating a dilutive impact of 13% to 15% if applied to unaffected 2023 reported adjusted EBITDA, which creates uncertainty about Ardent’s actual net margin improvement over the next 3-5 years.

In other recent news, Ardent Health Partners reported second-quarter earnings that surpassed estimates, driven primarily by a $65 million EBITDA benefit from the New Mexico Directed Payment Program approval. Excluding this benefit, the company’s core revenue growth was in line with management’s expectations, showing a mid-single-digit percentage increase year-over-year. Ardent Health also announced an amendment and extension of its $777.5 million Term Loan Facility, reducing the interest rate by 50 basis points, which is expected to cut annual interest expenses by approximately $3.9 million.

JPMorgan has adjusted its price target for Ardent Health to $15, citing the impact of Medicaid tax, while maintaining a Neutral rating. UBS reiterated its Buy rating with a $17 price target, focusing on Ardent’s margin improvement efforts despite regulatory challenges. Truist Securities also maintained a Buy rating with a $21 price target, highlighting Ardent’s strong market positioning and growth opportunities. UBS initiated coverage with a Buy rating, suggesting the stock’s decline may be an overreaction to Medicaid payment reductions. These developments highlight the company’s ongoing financial and strategic maneuvers amid a complex regulatory environment.

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