On Friday, UBS updated its outlook on GoodRx Holdings Inc. (NASDAQ: GDRX), increasing the price target to $8.00 from the previous $5.00 while keeping a Neutral rating on the stock.
The revision follows GoodRx's recent announcement of a $450 million share repurchase program, which is expected to bolster the stock's performance. The buyback plan could potentially cover the acquisition of approximately 56 million shares, based on UBS's current price target, against the 75.5 million Class A shares currently in the float.
The company's positive guidance for 2024, which showed a 1-2% increase in the top line since January, has been a key factor in UBS's reassessment. This growth is partly attributed to incremental revenue from GoodRx's Integrated Savings Program (ISP), with the possibility of further gains from mid-year enrollments.
Additionally, GoodRx's 2024 EBITDA forecast was notably higher than expected, suggesting a margin improvement of 220 basis points over 2023. These gains are believed to be a result of the company's restructuring initiatives, such as de-emphasizing VitaCare, and from operational leverage.
Nevertheless, UBS notes the importance of determining the sustainability of this positive trend in GoodRx's core prescription business.
While the recent quarter's results have been promising, UBS remains cautious in its projections, not expecting the same annual EBITDA margin increases in the future until the ISP reaches a more predictable and steady state. The firm suggests that further validation of the ISP throughout the year could lead to an even higher re-rating of GoodRx shares.
GoodRx's stock is currently trading at around 12 times its enterprise value to EBITDA (EV/EBITDA), which is seen as a support level for the company's shares.
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