Health Catalyst shares target cut, holds rating on execution questions

On Monday, Piper Sandler adjusted its outlook on shares of Health Catalyst Inc. (NASDAQ:HCAT), reducing the price target to $11 from $14 while retaining an Overweight rating. The firm acknowledged the positive aspects of the company's performance, including strong bookings in the first half of the year and robust demand.

Moreover, Health Catalyst has completed $61.2 million in acquisitions from May to August. Despite these factors and delivering second-quarter revenue that met expectations, along with reiterating its guidance for the calendar year 2024, some questions remain post-earnings release.

The firm had the chance to discuss these queries with Health Catalyst's management on August 20, 2024. Although some questions persist following the conversation, Piper Sandler continues to view Health Catalyst as an attractive small to mid-cap (SMID) turnaround opportunity.

The company's potential for renewed growth and significant margin improvement, particularly as it promotes its Ignite platform during a hospital investment cycle, supports this perspective.

Nevertheless, due to the unresolved questions, Piper Sandler has revised its target multiple down to 15 times the projected fiscal year 2025 adjusted EBITDA, resulting in the new price target of $11. This adjustment reflects a more cautious valuation approach while the firm's overall positive outlook for Health Catalyst remains unchanged.

The Overweight rating suggests that Piper Sandler still believes in the stock's potential to outperform the broader market despite the recent adjustments.

In other recent news, Health Catalyst delivered a robust performance in the second quarter of 2024, exceeding its financial guidance. The company's revenue reached $75.9 million, a 4% increase year-over-year, and its adjusted EBITDA stood at $7.5 million. Health Catalyst also saw a substantial increase in its platform subscription client base in the first half of 2024, surpassing the entire previous year's growth.

Strategic partnerships and acquisitions have strengthened Health Catalyst's market position, and the company remains committed to its technology-focused acquisition strategy. Despite a client's bankruptcy proceedings, Health Catalyst maintains its full-year adjusted EBITDA guidance and anticipates a return to double-digit revenue growth in 2025.

These recent developments reflect the company's resilience and strategic focus. Health Catalyst's capital deployment strategy, which emphasizes integrating strong application layer capabilities with smaller tuck-in technology acquisitions, has been instrumental in its growth. The company is well-positioned for continued growth and innovation in the healthcare data analytics market.

InvestingPro Insights

As Health Catalyst Inc. navigates through its turnaround phase, the latest data from InvestingPro offers a mixed financial picture. With a market capitalization of approximately $439.62 million, the company's financial health shows a robust cash position, as highlighted by one of the InvestingPro Tips, which notes that Health Catalyst holds more cash than debt on its balance sheet. This is a reassuring sign for investors concerned about the company's liquidity and financial resilience.

Furthermore, another InvestingPro Tip suggests optimism for the company's future profitability, with analysts predicting Health Catalyst will become profitable this year. This aligns with the company's potential growth trajectory as it continues to promote its Ignite platform. Still, it is worth noting that the company has not been profitable over the last twelve months, and five analysts have revised their earnings downwards for the upcoming period, signaling potential challenges ahead.

InvestingPro Data also shows a revenue growth of 5.23% over the last twelve months as of Q2 2024, indicating some positive momentum in the company's sales. A gross profit margin of 45.87% during the same period suggests that Health Catalyst has been effective in managing its cost of goods sold relative to its sales. However, the company's operating income margin stands at -24.87%, reflecting the current operational challenges it faces.

For investors seeking more comprehensive analysis, there are additional InvestingPro Tips available at InvestingPro Health Catalyst, which delve deeper into the company's financial and operational metrics.

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