Goldman Raises Price Target On Accretive Health

Goldman Sachs has published a research report on Accretive Health, Inc.

after meeting with company management. In the report, Goldman Sachs writes "We provide key points from meetings with Accretive Health (AH, Neutral) management and investors: (1) AH emphasized its confidence in the $150mn-$200mn in contracting backlog, stating the majority of contracts are in the very late stages of the process (regulatory clearance). Assuming the contracting backlog closes in the next 30-90 days, PCARRR could near $870 mn in 1Q 2011, which would cover the 2011 revenue consensus of $840 mn without additional backlog conversions. (2) Quality and total cost of care remains an intriguing opportunity, with the current $1 bn Fairview contracts representing only 17% of the total potential Fairview opportunity and our diligence suggests the Fairview contract is likely to expand. Quality EBITDA margins are expected to be negative in the first few quarters and potentially exceed peak RCM margins of 17%-18% by year 3. (3) AH has been able to renegotiate the past 14 RCM contracts at a consistent base fee rate and does not expect base fee erosion in future renegotiations. (4) AH is seeing minimal impact (< 0.5% of revenues) from a weak utilization environment. We are increasing our 2011/2012 EPS to $0.42/$0.68 from $0.41/$0.67 on increased confidence in backlog." Goldman Sachs maintains its Neutral rating and has raised the price target from $13 to $14. Accretive Health closed yesterday at $13.99.