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Skylight Health is still a pass, says Raymond James

It’s still a wait-and-see approach to Skylight Health Group (Skylight Health Group Stock Quote, Chart, News, Analysts, Financials TSXV:SLHG), according to Raymond James analyst Rahul Sarugaser who maintained a “Market Perform 3” rating on the stock in an update to clients on Monday. At the same time, Sarugaser raised his target price on Skylight on account of a recent acquisition, though his estimation of the healthcare services space in general remains gloomy.

Skylight Health Group operates a multi-state primary care health network of clinics providing a range of services from primary care, sub-specialty, allied health and laboratory and diagnostic testing. Sarugaser’s latest analysis comes ahead of the company announcing its first quarter financial results for the 2022 fiscal year on Tuesday.

In his pre-release forecast, Sarugaser is in line with the consensus in estimating $8.4 million in revenue, which would be a sequential decrease of 15.2 per cent in relation to the $9.9 million reported in the previous quarter. However, he is more optimistic when it comes to the company’s adjusted EBITDA, as his forecast of a $2.2 million loss comes in well ahead of the consensus outlook of a $4.6 million loss, as well as outpacing the $8.5 million loss reported in the final quarter of 2021.

Overall, Sarugaser forecasts a net income loss of $3.5 million compared to the consensus projection of a $5.1 million loss, while still coming in ahead of the $10.8 million loss reported in the final quarter of 2021.

Skylight comes into its quarterly results release having recently completed the acquisition of Neighbour MD, which brings nine more practices across Central and Southern Florida with over 2,400 owned and affiliated global capitated risk lives under the Skylight umbrella.

“We are very pleased to close our largest acquisition to date and welcome the team at Neighbour MD into the Skylight Health Group,” says Prad Sekar, CEO and Co-Founder of Skylight Health in the company’s May 6 press release. “Not only does this more than double our revenue run rate and strengthen our market share in Florida, but it also significantly accelerates our entry into full-risk in 2022, as originally planned for 2025. We are now strongly positioned with risk contracts to begin focusing on our pipeline within Florida that will present Medicare and MA growth.”

The upcoming financial results, along with the Neighbor MD acquisition closing, have prompted Sarugaser to alter his financial expectations, raising his 2022 revenue target from $48 million to $74 million for a potential year-over-year increase of 174.1 per cent, while his 2023 projection more than doubled from $57 million to $118 million, suggesting a year-over-year increase of 59.5 per cent.

From a valuation perspective, Sarugaser lowered his EV/Revenue multiple projection for 2022 from 1.4x to 0.6x, and his 2023 projection dropped from 1.2x to 0.4x.

Meanwhile, Sarugaser continues to forecast negative adjusted EBITDA for the company moving forward, with further losses of $17 million forecasted for 2022 (previously a $3 million loss forecast), while his 2023 forecast is now set at a $13 million loss after previously being projected as breakeven. With his maintained “Sector Perform” rating, Sarugaser asserts a new $3.25 per share target (previously $2.50), which at the time of publication represented a projected one-year return of 311.4 per cent.

“We update our models—in particular, for SLHG’s acquisition of NeighbourMD adding US$35 million trailing 12 months revenue—and, given that we value the company on a multiple of EV/Rev., raise our target to $3.25. With persistent negative sector sentiment, however, we maintain our rating at Market Perform,” Sarugaser wrote.


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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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