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UBS cut its rating of Cano Health (NYSE:CANO) to sell, citing the company’s deteriorating liquidity position.
The investment bank said in a note Friday that it believes that “elevated third-party medical expenses will have a sustained negative effect on the company’s already challenged liquidity position.”
Noting that Cano has reported “unsustainably high” medical loss ratios for two quarters in a row, UBS said the nature of the company’s contracts with commercial payers make it difficult for it to respond to quarter-to-quarter changes. UBS added that it was “unlikely” that Cano could renegotiate contracts to “carve out benefits or reduce its level of risk in the near-term.”
UBS also pointed out that during its Q3 earnings, Cano reiterated doubts about its ability to continue as a going concern within one year. It added that Cano had $53M in cash and equivalents as of Nov. 9 with "no capacity remaining on its revolver." The company is continuing to explore strategic options.
UBS dropped its price target for the stock to $3.75 from $12.