Jefferies downgrades R1 RCM stock as acquisition deal finalizes at fair price
On Thursday, Jefferies made adjustments to its stance on R1 RCM Inc (NASDAQ:), downgrading the stock from Buy to Hold and reducing the price target to $14.30 from $15.00.
The revision follows the announcement of a definitive agreement for the acquisition of R1 RCM by private equity firms TowerBrook and Clayton, Dubilier & Rice (CD&R).
The agreed acquisition price is set at $14.30 per share in cash, marking an 11% premium over the last closing price and a 29% premium over the unaffected price prior to the deal announcement.
The analyst from Jefferies believes that the acquisition price is fair for all involved parties, and does not anticipate competing bids to emerge. However, the completion of the transaction remains contingent upon the approval of R1 RCM shareholders and regulatory authorities.
The analyst’s previous research had indicated that an internal leveraged buyout (LBO) model supported a reasonable acquisition price range of $14 to $15 per share.
The definitive agreement to acquire R1 RCM at a cash offer of $14.30 per share reflects the premium that the buyers are willing to pay over the market price. This offer is also in line with Jefferies’ valuation of the company, as suggested by their LBO model.
The analyst’s downgrade to Hold indicates a neutral stance on the stock, suggesting that they do not see significant movement in the share price until the acquisition process is concluded.
The acquisition proposal is now subject to the customary closing conditions, including the approval of R1 RCM’s shareholders and the green light from regulatory bodies. If the deal proceeds as planned, R1 RCM will become a privately held company under the ownership of TowerBrook and CD&R.
The transaction is a key development for R1 RCM and its investors, potentially concluding the company’s presence on the public market at the acquisition price.
In other recent news, R1 RCM Inc. has been subject to a series of noteworthy events. The company is set to be acquired by investment funds affiliated with TowerBrook Capital Partners and Clayton, Dubilier & Rice (CD&R) in a cash transaction valued at approximately $8.9 billion.
This acquisition, approved by R1’s independent director committee, will result in R1 becoming a private company, with its shares delisted from Nasdaq.
The company also reported Q1 revenues of $604 million and an adjusted EBITDA of $152 million, despite a cyberattack and a customer bankruptcy impacting earnings by $9.5 million. R1 RCM’s updated outlook for 2024 anticipates revenue between $2.6 billion to $2.64 billion, and adjusted EBITDA between $625 million to $650 million.
In addition, R1 RCM is undergoing a tech transformation, integrating automation and AI to enhance its platform and improve profit margins. On the analysts’ front, firms like RBC Capital, TD Cowen, and Citi Research have maintained a positive stance on the company, while KeyBanc Capital Markets downgraded the company due to concerns related to the cyberattack. These are the recent developments that have been shaping the trajectory of R1 RCM Inc.
InvestingPro Insights
As R1 RCM Inc (NASDAQ:RCM) approaches a pivotal moment in its corporate journey, recent data from InvestingPro offers insights into the company’s financial health and market performance. Despite the company not being profitable over the last twelve months, analysts predict that R1 RCM will turn a profit this year, aligning with the optimistic outlook of the acquisition deal. This anticipation of growth is supported by a solid revenue increase of 17.61% over the last twelve months as of Q1 2024, underscoring the company’s expanding operations.
InvestingPro data also highlights a significant 33.57% EBITDA growth for the same period, which may be indicative of improved operational efficiency and potential for increased profitability moving forward. With a market capitalization of $5.91 billion and a forward-looking P/E ratio of 75.43, the company is trading at a high valuation multiple, suggesting that investors may expect substantial future earnings growth relative to the stock’s current price.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips on R1 RCM, providing a deeper dive into the company’s financial metrics and market potential. A quick glance at the platform reveals four more InvestingPro Tips that could further inform investment decisions regarding R1 RCM’s stock.
As the acquisition by TowerBrook and CD&R progresses, keeping an eye on these financial metrics and expert insights could be crucial for shareholders and potential investors alike. For more detailed advice and metrics, consider exploring the full range of InvestingPro Tips available at https://www.investing.com/pro/RCM.
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