Performant stock rated a Buy with new Medicaid contract and federal bidding opportunities

On Friday, B.Riley maintained a positive outlook on Performant Financial Corporation (NASDAQ:PFMT), reasserting a Buy rating and an $8.00 price target. The firm's analyst highlighted the recent New York State Medicaid Recovery Audit Contractor (RAC) win and the end of the protest period as key factors. The new project is set to begin on April 7, 2025, and is anticipated to bring in about $15 million annually, which accounts for 4% of New York's overall state market.

The analyst pointed out the significant potential this contract holds for Performant Healthcare Solutions, a division of the company. In 2023, the base healthcare business of Performant generated $106 million and is projected to produce approximately $120 million in 2024. The new contract is expected to contribute materially to this growth.

In addition to the New York State contract, Performant Financial has several federal contracts already in place, including MSP CRC, HHS OIG, and RAC Regions 1, 2, and 5. The company also has the chance to bid on Regions 3 and 4 and re-bid for the soon-to-expire Region 5 contract within the next six months.

The report also noted Performant's success in expanding its non-federal business, particularly with mid-tier commercial payers. Over the past three fiscal years, the company has achieved a 60% sales compound annual growth rate (CAGR) after prioritizing this market segment. With 15% of the market currently served by Performant's clients, the company has completed 20 implementations in the first half of the year, matching the pace of the 41 total in 2023.

The B.Riley analyst concluded that with multiple growth drivers across its various business units, Performant Financial is well-positioned for continued expansion and improved earnings leverage. The firm's reiterated Buy rating and $8 price target reflect confidence in the company's growth trajectory.

In other recent news, Performant Financial has been in the spotlight with significant developments. The company reported substantial growth in its Q1 2024 earnings, accompanied by a marked increase in year-over-year revenue. Performant Financial also initiated ten new programs with existing clients, expected to generate an annualized revenue between $5 million and $6 million.

Performant Financial secured a significant three-year contract for Medicaid Recovery Audit Contractor Services, displacing the previous nine-year holder of the contract, HMS/Veritas Capital. Analysts at B. Riley maintained a positive outlook on the company, keeping a Buy rating, and highlighted the importance of this new contract.

Furthermore, Performant Financial announced its tentative selection for the New York State Medicaid Recovery Audit Contractor (RAC) award. This award further solidifies the company's presence in the government sector.

In governance news, Lisa C. Im and Bradley M. Fluegel were elected as Class III directors during its Annual Meeting of Stockholders. Lastly, despite operating expenses of $31.3 million, Performant's adjusted EBITDA surpassed expectations at negative $1.2 million, and the company maintains its full-year guidance.

InvestingPro Insights

Recent data from InvestingPro adds depth to the positive outlook presented by B.Riley on Performant Financial Corporation (NASDAQ:PFMT). Despite the company's current unprofitability, as indicated by its negative P/E ratio of -42.26, PFMT has shown strong revenue growth. In the last twelve months as of Q2 2024, the company's revenue grew by 10.77%, with an even more impressive quarterly growth of 15.21% in Q2 2024. This aligns with the analyst's projections of increased revenue from the new New York State contract and expansion in the non-federal business sector.

InvestingPro Tips highlight that PFMT has demonstrated a high return over the last year, with a one-year price total return of 51.3%. This performance, coupled with a strong return over the last three months (38.65%), supports the positive sentiment expressed in the B.Riley report. Additionally, the company operates with a moderate level of debt and has liquid assets exceeding short-term obligations, which could provide financial flexibility as it pursues growth opportunities.

For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for PFMT, providing a deeper understanding of the company's financial health and market position.

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