Health Catalyst shares retain buy rating, price target from Canaccord

On Tuesday, Canaccord Genuity maintained a Buy rating and an $11.00 price target on shares of Health Catalyst Inc. (NASDAQ:HCAT), following the company's second-quarter earnings report on August 7. The firm is set to host Health Catalyst management for virtual investor meetings and a fireside chat on September 12.

After a recent earnings call, the company's management expressed increased optimism regarding growth prospects, especially with the introduction of the Health Catalyst Ignite platform earlier this year.

The Ignite platform's enhanced modularity and flexibility, along with more effective cross-selling to non-platform clients, have led to an upward revision of expected net new platform subscription client additions. The forecast has been increased to the low-twenties from the previously anticipated mid-teens. Management has also observed a larger than expected pipeline for technology expansion, non-recurring professional services, and new clients at the start of 2024.

Despite the prioritization of these opportunities over the lower-margin tech-enabled managed services (TEMS), the TEMS pipeline is still considered significant. Consequently, the dollar-based retention target for 2024 has been adjusted to a range of 100-106%, down from the prior 104-110%.

However, the anticipated contributions from non-recurring professional services contracts, which are expected to be around 3 to 4 points in 2025 and typically yield higher margins than initial TEMS engagements, are not included in this retention metric.

The combined effect of the dollar-based retention, non-recurring professional services, and strong subscription client additions reinforces confidence in the company's double-digit revenue growth target for 2025.

Moreover, the growth from the Ignite platform is projected to come at a higher margin, roughly 70% compared to the legacy DOS's approximately 60%, alongside significant operating leverage that is expected to persist. This underpins the guidance for full-year 2024 adjusted EBITDA and the ~50% adjusted EBITDA growth target for 2025 as the new subscription business gains traction.

With Health Catalyst's stock currently trading at approximately 1.1 times the firm's estimated 2025 revenue and 10.3 times the estimated 2025 adjusted EBITDA, Canaccord Genuity views the risk/reward balance for HCAT shares as attractive at current levels. The firm believes that the stock has the potential to increase if the company successfully meets its targets.

In other recent news, Health Catalyst has been making significant strides. The company reported robust Q2 2024 earnings, with revenue reaching $75.9 million, a 4% year-over-year increase, and adjusted EBITDA hitting $7.5 million. This performance surpassed the company's financial guidance, demonstrating a strong first half of 2024.

Health Catalyst also completed acquisitions worth $61.2 million from May to August, enhancing its market position. Despite a client's bankruptcy proceedings, the company maintains its full-year adjusted EBITDA guidance, indicating resilience in its financial strategy.

Piper Sandler, an analyst firm, recently adjusted its outlook on Health Catalyst. It reduced the price target to $11 from $14 while retaining an Overweight rating, suggesting potential for the stock to outperform the broader market. The firm acknowledged the company's strong bookings and robust demand, viewing it as an attractive small to mid-cap (SMID) turnaround opportunity.

Furthermore, Health Catalyst anticipates a return to double-digit revenue growth in 2025. The company's capital deployment strategy, focusing on integrating strong application layer capabilities with smaller technology acquisitions, has been instrumental in its growth. These recent developments reflect Health Catalyst's strategic focus and potential for continued growth in the healthcare data analytics market.

InvestingPro Insights

As Health Catalyst Inc. (NASDAQ:HCAT) continues to garner attention following its second-quarter earnings report and the optimism surrounding its Ignite platform, InvestingPro data provides a deeper financial perspective on the company. With a market capitalization of approximately $434.78 million, HCAT's financial health shows a blend of challenges and potential.

Notably, the company holds more cash than debt on its balance sheet, which can be a sign of financial stability. Analysts also predict that Health Catalyst will be profitable this year, aligning with the company's growth prospects and strategic initiatives. However, it's important to note that the company was not profitable over the last twelve months, and five analysts have revised their earnings downwards for the upcoming period.

From a valuation standpoint, HCAT's price-to-book ratio stands at 1.22, suggesting that the stock may be reasonably valued in relation to the company's net assets. Moreover, the company's revenue growth remains positive, with a 5.23% increase in the last twelve months as of Q2 2024, indicating an upward trajectory in its financial performance. Despite these encouraging signs, the company does not pay a dividend, which may be a consideration for income-focused investors.

For those considering an investment in Health Catalyst, there are over 5 additional InvestingPro Tips that can provide more detailed insights and guidance. These tips are available at InvestingPro Health Catalyst, offering valuable information that could help investors make more informed decisions.

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