UBS upgrades Afya stock rating to Buy on strong operational momentum

Investing.com - UBS upgraded Afya Ltd. (NASDAQ:AFYA) from Neutral to Buy on Monday, while slightly lowering its price target to $19.00 from $19.50. The company, currently trading at a P/E ratio of 10.55x, is showing signs of undervaluation according to InvestingPro analysis.

The upgrade comes despite UBS’s more conservative outlook on Afya’s M&A pipeline, which it now expects to resume by mid-2026 when interest rates are anticipated to be more favorable, and the negative impacts from changes in the taxation environment under OECD Pillar Two.

UBS notes that Afya continues to show strong momentum in operations, with healthy demand for medical courses and cost-cutting initiatives from its shared service center maintaining EBITDA margins at approximately 45%. The company’s impressive gross profit margins of 64.56% and revenue growth of 15.6% in the last twelve months further support this operational strength.

The firm’s net income estimates for Afya were reduced by approximately 9% for 2025-29, primarily due to an expected increase in the effective tax rate to 15% from about 8% previously, though UBS still projects EPS growth of around 10% during 2025-27, excluding share buybacks.

With Afya shares trading at close to 8x forward P/E following a 24% share price decrease from recent highs, UBS believes the current valuation represents an attractive entry point into what it describes as a "high quality, low leveraged and high return name in the BZ Education industry." InvestingPro analysis confirms this view, with the stock currently showing multiple signs of undervaluation and maintaining a "GREAT" overall financial health score. Discover more insights about AFYA and 1,400+ other stocks with InvestingPro’s comprehensive research reports.

In other recent news, Afya Ltd reported a strong earnings performance for the second quarter of 2025. The company posted earnings per share of $2.27, exceeding analysts’ expectations of $1.98 by 14.65%. However, revenue came in at $919.4 million, which was slightly below the anticipated $935.49 million. Following these results, JPMorgan upgraded Afya’s stock rating from Neutral to Overweight, citing solid performance as a key factor. The firm also raised its price target for Afya to $24.50 from $23.50. These developments indicate that Afya is on track to meet its company guidance, according to JPMorgan’s analysis.

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