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On Wednesday, Raymond (NSE:RYMD) James analyst John Ransom revised the firm’s stance on RadNet (NASDAQ:RDNT) shares, upgrading the company from Outperform to Strong Buy. However, the price target was reduced to $65 from $85. Ransom’s assessment pointed to a more appealing valuation of RadNet at the current level, especially considering the implied valuation of the AI division at approximately $615 million, or 5.5 times its revenue. According to InvestingPro data, the stock currently trades at an EV/EBITDA multiple of 19.8x, suggesting it remains overvalued compared to its Fair Value.
RadNet’s stock experienced a decline on Wednesday, which Ransom attributes to investor reactions to a lower than expected guidance and the impact of recent adverse weather conditions, coupled with a previously high valuation of around 16 times the projected 2025 EBITDA. InvestingPro data shows the stock has fallen nearly 13% in the past week, though revenue growth remains strong at 13.2% over the last twelve months. Despite these factors, Ransom suggests that the company’s 2025 imaging center guidance may be conservative, noting that it assumes only about 3% volume growth compared to 10% in 2023 and 8% in 2024. He also mentions the potential for additional growth through mergers and acquisitions, which is not currently reflected in projections. Get access to 12 more exclusive InvestingPro Tips and comprehensive analysis through the Pro Research Report.
Ransom further explains that RadNet’s stock is now trading at roughly 12.5 times the forecasted 2026 EBITDA, which implies a valuation of around $615 million for its digital health business. This marks a significant decrease from its peak valuation, which was nearly 30 times its revenue. Despite the lowered price target, the analyst maintains a positive outlook on RadNet, highlighting the company’s leadership in the outpatient radiology sector, the prospects of its digital health business, and the possibility of future mergers and acquisitions, given the company’s substantial cash reserves exceeding $700 million. InvestingPro data supports this financial strength, showing a healthy current ratio of 2.12, indicating strong liquidity to support future growth initiatives.
In other recent news, RadNet Inc. reported its fourth-quarter 2024 financial results, showcasing a 13.5% increase in revenue to $477.1 million, driven primarily by a 28.1% growth in its Digital Health segment. However, the company fell short of earnings per share (EPS) expectations, reporting an EPS of $0.07 compared to the forecasted $0.20. This earnings miss was attributed to environmental disruptions such as Southern California fires and winter storms on the East Coast and Texas, which impacted first-quarter trends. Despite these setbacks, Jefferies analyst Brian Tanquilut maintained a Buy rating on RadNet, albeit with a reduced price target of $76, citing the company’s robust growth potential and significant capital deployment as positive factors.
RadNet’s adjusted EBITDA for the quarter increased by 14% to $75 million, with a year-end cash balance of $740 million. The company’s guidance for 2025 includes an anticipated 30% growth in Digital Health revenue, aiming for $80-$90 million. The firm is also investing heavily in its digital health infrastructure and cloud-native platforms, with a projected $20 million investment in 2025 to support external customer growth. Furthermore, RadNet’s strategic focus on expanding its digital health offerings and developing clinical AI tools indicates a strong commitment to enhancing its competitive position in the market.
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