Jefferies cuts US Physical Therapy target to $100, keeps buy rating

On Tuesday, Jefferies adjusted its outlook on US Physical Therapy (NYSE:USPH), lowering the price target to $100 from the previous $122.50. Despite the reduction, the firm maintains a Buy rating on the shares of U.S. Physical Therapy. The revision follows the company's recent announcement of a significant acquisition.

Yesterday, U.S. Physical Therapy disclosed its agreement to acquire a 50% equity stake in 50 outpatient clinics located in New York. The transaction is valued at $76.5 million. These clinics currently yield approximately $64 million in annual revenue and about $12 million in annual EBITDA.

The analyst from Jefferies views this acquisition as accretive, strengthening the company's position in the physical therapy industry. The deal is seen as a positive move that aligns with the secular trends observed in the sector. It is expected to contribute to U.S. Physical Therapy's sustained organic volume growth.

Furthermore, the company's solid merger and acquisition pipeline is also a factor that supports the analyst's positive outlook. The acquisition is part of a strategy to expand U.S. Physical Therapy's footprint and enhance its service offerings in the healthcare market.

The deal is a strategic step for U.S. Physical Therapy as it continues to grow in the highly competitive physical therapy space. The acquisition's impact on the company's financial performance will be monitored by investors and industry observers alike.

In other recent news, U.S. Physical Therapy has been making significant strides in expansion and financial growth. The company recently announced plans to acquire a 50% equity interest in MSO Metro, a deal valued at $76.5 million. MSO Metro, which manages 50 outpatient clinics mainly in New York, brings in $64 million in annual revenue and $12 million in adjusted EBITDA. This acquisition, expected to complete by the end of October, is seen as a strategic move for U.S. Physical Therapy to establish a significant presence in the New York market.

In addition to the MSO Metro acquisition, U.S. Physical Therapy expanded its operations in Pennsylvania by acquiring a 70% stake in a local practice with eight clinic locations, expecting to generate an estimated $5.5 million in annual revenues. However, BofA Securities downgraded the stock to Neutral from Buy due to concerns about increasing labor costs and slower-than-anticipated development of new locations. Despite these concerns, analysts project a full-year 2024 EBITDA between $80 million to $85 million.

Lastly, the company reported record-breaking clinic visits for Q2 2024, with an 8.5% increase in physical therapy revenues and an adjusted EBITDA of $22.1 million. To counter potential Medicare reimbursement rate cuts and address labor shortages, U.S. Physical Therapy is actively negotiating higher rates with commercial payers and investing in recruitment and school partnerships.

InvestingPro Insights

U.S. Physical Therapy's recent acquisition aligns with its growth strategy, as reflected in the company's financial metrics and market position. According to InvestingPro data, USPH has demonstrated revenue growth of 8.04% over the last twelve months, with quarterly revenue growth reaching 10.37% in Q2 2024. This growth trajectory supports the company's expansion efforts, including the newly announced acquisition in New York.

InvestingPro Tips highlight that USPH has maintained dividend payments for 14 consecutive years, indicating financial stability. This consistency in shareholder returns could be attractive to investors, especially considering the company's current dividend yield of 2.24%.

The acquisition's potential to be accretive is particularly important given that USPH is trading at a high earnings multiple, with a P/E ratio of 73.88. However, the adjusted P/E ratio for the last twelve months stands at a more moderate 48.74, suggesting that the market may be pricing in future growth expectations.

It's worth noting that USPH is currently trading near its 52-week low, which could present an opportunity for investors who share Jefferies' positive outlook on the company. The analyst's revised price target of $100 still represents significant upside potential from the current price of $78.49.

For readers interested in a deeper analysis, InvestingPro offers 10 additional tips for USPH, providing a more comprehensive view of the company's financial health and market position.

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