© Reuters. Cano Health (CANO) shares drop 8% after Piper Sandler downgrades to underweight due to challenging outlook
Piper Sandler analyst Jessica Tassan downgraded Cano Health Inc (NYSE:) from Neutral to Light with a price target of $5 per share, down from $8.50.
As a result, Cano’s stock price fell about 8% as it entered the New York open today.
Despite its relatively cheap valuation compared to its peers, Tassan said he cannot recommend CANO stock to investors. Among other things, the analyst noted that fiscal year 22 capital allocation prioritized revenue retention over growth.
During the 4Q21 call, management signaled that affiliate investments would be the #1 investment priority in FY 22. CANO will support 22 year de novo builds against its initial forecast of 22. 54-59. We believe that this year’s increased investments in associates will draw attention to CANO’s practice of financial consolidation. Because the member firms are already consolidated, M&A execution is efficient without incremental memberships, revenue, or adjusted EBITDA. It’s an investment in maintenance, not growth. “We don’t think this momentum is overrated, but expect closer scrutiny in FY22,” Tassan said in a client note.
Tassan estimates that owned suppliers generate 50% of CANO’s P&L, with the remainder generated by affiliated suppliers.
He also expects that owned suppliers will bring in $1.72 billion in revenue in fiscal year 23E and $145 million in adjusted EBITDA.
Overall, the analyst says that the fundamental outlook is being challenged only, hence being downgraded to Underweight.
By Senad Karaahmetovic