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On Tuesday, RBC Capital Markets adjusted its outlook on Evolent Health (NYSE:EVH) by reducing the price target to $17 from the previous $20, while sustaining an Outperform rating on the stock. The revision comes after Evolent Health provided an update on its re-contracting initiatives, reporting success in achieving over $100 million of incremental EBITDA year-over-year, effective January 1.
The company has managed to retain all of its clients through a mix of contract conversions and price increases. According to InvestingPro data, the stock appears undervalued at its current price of $11.61, with analysts maintaining an average price target suggesting 65% upside potential.
Despite the positive re-contracting outcome, Evolent Health's management anticipates some of the gains to be offset by a higher than expected oncology trend, which subtracts approximately $25 million from their projections. This trend reportedly accelerated in November.
Additionally, membership declines are expected to impact the company's financials negatively by about $20 million, following the termination of Medicare Advantage plans by several clients.
This development was not previously factored into RBC Capital's estimates. While these challenges are significant, InvestingPro data shows the company maintaining strong revenue growth of 37.65% over the last twelve months, with analysts predicting profitability this year.
As a result of these unforeseen challenges, the firm has revised its EBITDA estimate for Evolent Health for the year 2025 downward from $206 million to $175 million. The new projection takes into account the anticipated lower membership numbers and the increased cost trend. The adjusted price target of $17 reflects these revised expectations.
Evolent Health's efforts in re-contracting, marked by the retention of all clients and the achievement of significant incremental EBITDA, underscore the company's operational progress. However, the impact of higher oncology costs and membership declines has necessitated a recalibration of financial forecasts for the healthcare company. RBC Capital's maintained Outperform rating indicates a continued positive outlook on Evolent Health's stock despite the adjustments.
In other recent news, Evolent Health (EVH) has been the subject of several key developments. KeyBanc's analysis implies EVH's 2025 EBITDA could exceed $200 million, significantly higher than previous investor expectations. This comes after EVH secured between $100 million to $105 million in payor contract updates, surpassing earlier projections. However, potential hurdles like higher oncology costs and payor plan exits could impact the 2025 EBITDA.
Needham analysts have initiated coverage on EVH, assigning a Buy rating and suggesting the stock is undervalued. They anticipate positive updates regarding payor negotiations and utilization rates at the upcoming JPM Conference. KeyBanc also expressed positivity for the Healthcare Services (NASDAQ:HCSG) sector in 2025, mentioning EVH as a potential gainer.
EVH has also secured $250 million in new financing, a move that strengthens its capital structure and supports growth initiatives. On the other hand, Oppenheimer has reduced its stock price target for EVH from $34 to $28, while maintaining an Outperform rating. They revised earnings per share estimates for fiscal years 2025 and 2026 to $0.97 and $1.37, respectively, following recent discussions with EVH's management.
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