KeyBanc sees PRVA acquisition of EVH’s MSSP as unlikely but instructive

On Tuesday, KeyBanc Capital Markets presented a hypothetical scenario in which Privia Health Group Inc. (NASDAQ:PRVA) would acquire the Medicare Shared Savings Program (MSSP) business from Evolent Health Inc . (NYSE:EVH), known as Evolent Care Partners. The timing of this analysis is notable, as EVH’s stock has declined over 70% in the past year, with the company currently valued at $1.09 billion. According to InvestingPro analysis, EVH appears undervalued at current levels, making it an interesting target for strategic discussions. In the analysis, KeyBanc suggested that while a deal between the two companies appears unlikely, the exercise offers valuable insights into the potential benefits and considerations of such a transaction.

According to KeyBanc, Evolent Care Partners is likely an undervalued asset within EVH’s portfolio and a sale could provide financial benefits, such as deleveraging EVH’s balance sheet and offering a slight increase in valuation. With EVH’s current EBITDA at $94 million and total debt of $714 million, such deleveraging could be significant. InvestingPro data reveals 11 additional key insights about EVH’s financial position and growth prospects, including management’s recent share buyback activities. The report also highlighted that Privia Health, with its valuation around 20 times EBITDA, robust balance sheet, and strong free cash flow, is well-positioned to pursue strategic mergers and acquisitions that could enhance shareholder returns.

Evolent Care Partners has been recognized as a leading participant in the MSSP, and for the 2023 performance year, it generated $65 million in shared savings with a 5.7% rate on $1.1 billion in managed spend. In contrast, Privia Health’s MSSP business produced $117 million in shared savings at a 7.6% rate on $2.3 billion in managed spend during the same period.

KeyBanc analysts considered several factors for a potential acquisition by PRVA, including the retention of existing MSSP business, potential synergies from improved performance, and the opportunity to cross-sell PRVA’s core offerings into Evolent Care Partners’ PCP base. They presumed that PRVA would evaluate these considerations thoroughly before any potential acquisition.

Under the assumptions made by KeyBanc, Evolent Care Partners would generate $48 million in revenue and an EBITDA of $10 million to $15 million, equating to a transaction value of approximately $165 million based on a 12-15x multiple. For EVH, a hypothetical sale could be slightly accretive to its valuation, improving leverage ratios. Analyst price targets for EVH currently range from $12 to $20 per share, suggesting significant upside potential. For PRVA, acquiring a business like Evolent Care Partners could be modestly accretive and create opportunities for cross-selling, potentially leading to further financial benefits over time. For detailed financial analysis and comprehensive valuation metrics on EVH and similar healthcare companies, investors can access the full Pro Research Report available on InvestingPro.

In other recent news, Evolent Health reported its fourth-quarter results, which missed analyst expectations. The company posted adjusted earnings per share of -$0.02, falling short of the consensus estimate of $0.07. Revenue for the quarter reached $646.5 million, below the projected $652.2 million but up 16.3% year-over-year. For the full year 2024, Evolent’s revenue was $2.55 billion, marking a 30.1% increase over 2023. However, its 2025 revenue guidance of $2.06 billion to $2.11 billion was lower than the expected $2.42 billion, disappointing investors.

Piper Sandler adjusted Evolent Health’s price target to $16 from $17 while maintaining an Overweight rating, noting the company’s earnings were at the lower end of guidance but still better than anticipated. Meanwhile, Citizens JMP raised its price target for Evolent Health to $13, reaffirming a Market Outperform rating. Analysts at both firms expressed confidence in the company’s management and business model, citing strong bookings and full retention of top customers as positive indicators. Despite the challenges, Evolent Health’s recent developments suggest potential for growth and stability in the coming years.

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