JP Morgan Downgrades Team Health To Neutral Amid Recent Upside

JPMorgan’s Gary P Taylor downgraded the rating for TeamHealth Holdings Inc TMH from Overweight to Neutral, while establishing a price target of $47. The analyst noted that TeamHealth’s shares had gained 25-30 percent following the 2016 guidance and the company’s disclosure of an 8 percent activist stake seeking election of three alternative directors.

Following the upturn in shares, TeamHealth’s stock is trading at a significant premium to its peers. The upside may be an indication of investors expecting the activist’s position to revive acquisition overtures from Amsurg Corp AMSG or another company, analyst Gary Taylor said.

Taylor added, however, that such overtures may not be feasible in the near term. He further commented that there could be increasing hospitalist attrition risk, while also expressing concern regarding the 2016 guidance being too aggressive.

Possible Acquisition Of TeamHealth?

Although Amsurg had announced a $71.47 per share offer for TeamHealth in 2015, a meeting with the former company’s CEO indicated that “the world has changed,” in terms of equity valuations in the staffing sector as well as market appetite for leverage. Taylor elaborated that that “capping pro forma leverage at a more market-friendly 4.0-4.5x materially impairs possible EPS accretion” for a bid for TeamHealth from either Amsurg or Envision Healthcare Holdings Inc EVHC.

“Over the longer-term, we still see TMH as a viable growth story with an important leading strategic position in the hospitalist specialty,” the analyst wrote.