Optimistic Long-Term Outlook for R1 RCM Despite Short-Term Challenges: Buy Rating Affirmed with a $16 Target Price

In a report released yesterday, Daniel Grosslight from Citi maintained a Buy rating on R1 RCM (RCM – Research Report), with a price target of $16.00.

Daniel Grosslight has given his Buy rating due to a combination of factors that suggest R1 RCM’s recent challenges are temporary and the company’s long-term outlook remains strong. The lighter than anticipated revenue in the first quarter of 2024 was attributed to short-term issues such as the Change Healthcare hack and other non-recurring events. Despite these setbacks, adjusted EBITDA still exceeded expectations, indicating robust underlying operational performance. Furthermore, the company’s guidance reduction for the full year was largely due to the aforementioned hack, which is expected to have a diminished impact going forward, particularly beyond fiscal year 2025.

Additionally, Grosslight sees potential in the ongoing onboarding of Providence, which is anticipated to contribute positively to revenues in the second half of 2024. The completion of the difficult initial phase with Sutter also suggests future margin improvement opportunities. A significant boost to the stock’s outlook is the increased likelihood of an acquisition, as evidenced by recent developments that indicate potential bidder collaboration. This increased acquisition probability, along with the company’s expected rebound, supports Grosslight’s Buy rating and a target price of $16, reflecting a 12.5x multiple on the projected 2025 adjusted EBITDA.

In another report released on May 7, Jefferies also assigned a Buy rating to the stock with a $18.00 price target.

RCM’s price has also changed moderately for the past six months – from $10.840 to $12.840, which is a 18.45% increase.

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R1 RCM (RCM) Company Description:

R1 RCM, Inc. engages in the provision of revenue cycle management to healthcare providers. It offers end-to-end, modular revenue cycle, and physician advisory services. The company was founded by Mary Ann Tolan and J. Michael Cline in July 2003 and is headquartered in Chicago, IL.