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On Monday, UBS initiated coverage on Surgery Partners (NASDAQ:SGRY), a company listed on NASDAQ under the ticker NASDAQ:SGRY, with a Buy rating and a price target of $38.00. The firm highlighted the company's potential for both organic growth and a strong pipeline of inorganic growth opportunities.
The analyst from UBS noted that the current investor concern regarding private equity ownership, which stands at approximately 40% of outstanding shares, has led to a stock overhang following a secondary offering in December 2023. This situation is perceived as an attractive entry point for investors, as Surgery Partners' stock is currently trading at a discount compared to its five-year historical average multiple.
Surgery Partners' stock is trading two turns below its historical average multiple of 13.4x on an EV/EBITDA basis. This is in spite of the company's continued delivery of strong year-over-year growth. UBS's analysis suggests that the market is underestimating the company's growth potential, pricing in growth of only 10-12% compared to Surgery Partners' consistent mid-teens adjusted EBITDA growth rate.
The firm believes that Surgery Partners' growth is sustainable over the medium to longer term. This outlook is based on secular tailwinds expected to impact the industry over the next 3-5 years, such as an aging U.S. population and a shift toward more medical procedures being performed in ambulatory settings. These factors are expected to support the ongoing expansion of the company.
In other recent news, Surgery Partners, Inc. reported significant financial growth in its Q2 2024 results. The company's net revenue reached $762 million, a 14.2% increase from the previous year, and adjusted EBITDA grew by 18% to $118.3 million. This growth was bolstered by a nearly 4% rise in surgical case volume and a strategic focus on higher acuity procedures. In addition, Surgery Partners has raised its 2024 net revenue outlook to over $3.075 billion and adjusted EBITDA to more than $508 million.
In other developments, Surgery Partners has initiated a change in its financial oversight structure, appointing Ernst & Young LLP as its new independent registered public accounting firm for the fiscal year ending December 31, 2024. Furthermore, KeyBanc has initiated coverage on Surgery Partners with a Sector Weight rating, highlighting the company's unique position as the only public pure-play in the Ambulatory Surgery Center (ASC) sector. According to KeyBanc, the company's strategic advantages could enable it to thrive as a long-term consolidator within the fragmented ASC market.
InvestingPro Insights
InvestingPro data and tips offer additional context to UBS's bullish stance on Surgery Partners (NASDAQ:SGRY). The company's revenue growth of 8.55% over the last twelve months, with a more impressive 14.16% growth in the most recent quarter, aligns with UBS's view of strong year-over-year growth. This is further supported by an EBITDA growth of 13.44%, demonstrating the company's ability to expand its operations efficiently.
An InvestingPro Tip indicates that net income is expected to grow this year, which corroborates UBS's optimistic outlook on the company's growth potential. Additionally, analysts predict that the company will be profitable this year, potentially addressing the current unprofitability over the last twelve months.
The stock's strong return over the last five years, as highlighted by another InvestingPro Tip, supports UBS's suggestion that the current trading price represents an attractive entry point. With a market cap of $3.85 billion and a price-to-book ratio of 1.97, investors might find value in SGRY's current valuation, especially considering UBS's $38 price target.
It's worth noting that InvestingPro offers 7 additional tips for Surgery Partners, providing investors with a more comprehensive analysis of the company's prospects. These insights can be particularly valuable given the stock's volatile price movements, as indicated by one of the InvestingPro Tips.
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