On Thursday, UBS updated its outlook on Lifestance Health Group (NASDAQ:LFST), increasing the stock price target to $9.00 from the previous $7.00. The firm retained a Neutral rating on the stock.
The adjustment follows Lifestance Health's recent financial report, which showed several positive indicators, including eased liquidity and cash flow concerns, solid financial year 2024 EBITDA and free cash flow (FCF) guidance, and a stable clinician turnover rate that aligns with industry norms.
The analyst noted that Lifestance Health's fundamentals appear stable or improving, with particular reference to churn, wages, and demand. The company's guidance for top-line growth in 2024 is set at 15%, considering a low-teens growth in the number of clinicians.
The projection suggests the addition of approximately 175 doctors per quarter, a target that Lifestance has successfully met in the past two quarters with 286 and 227 new clinicians in the third and fourth quarters, respectively.
The guidance does not include any expected productivity benefits, which had positively impacted fourth-quarter revenue by 2%. It also assumes a modest low single-digit payer rate increase. Moreover, management at Lifestance Health reportedly has significant control over general and administrative (G&A) expenses, with only 2% of G&A costs allocated to advertising spending.
UBS's report includes insights from a follow-up call with Lifestance Health's management, providing further clarity on the company's financial health and strategy. The firm's hesitation lies in the progression towards Lifestance's long-term goal of achieving a double-digit EBITDA margin by the end of 2025, which implies a more significant increase in margins for 2025 compared to 2024.
The analyst indicated that more details on the specific drivers of this margin improvement are necessary to gain stronger conviction in the stock's potential following its post-earnings movement.
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