Inovalon Lacks Street-Cred, Says Goldman Sachs

Inovalon Holdings Inc INOV reported disappointing 2Q16 results, while lowering its EBITDA guidance for 2016.

Goldman Sachs’ Andre Benjamin downgraded the rating on the company from Buy to Neutral, while lowering the price target from $25 to $17.

Guidance Cut

Benjamin mentioned that Inovalon Holdings reported its 2Q16 EBITDA 7 percent below consensus, while lowering its 2016 EBITDA guidance from $182–$188 million to $130–$140 million.

“The $45 million EBITDA cut (at midpoint) was due to: 1) $35 million revenue cut and 2) a decision to invest more in technology, new products and its sales force,” the analyst explained.

Range-Bound Stock

The stock has declined 27 percent since mid-May, as compared to a 2 percent rise in the S&P 500, driven by a series of earnings misses.

Related Link: Benzinga's Top Downgrades

Benjamin expects the stock to remain range bound at least for the remainder of 2016, given the limited visibility into whether Inovalon Holdings’ initiatives to offset competitive pressures and grow beyond its core payer market would gain traction until 1Q or 2Q of 2017, at the earliest.

Need For Greater Credibility

The analyst also believes that the company’s attractive growth potential for 2017–2018 and balance sheet optionality are now offset by near term risk due to competitive pressures and “a need to establish greater credibility with the Street after four consecutive EBITDA misses and two consecutive EBITDA guidance cuts.”

“We also see the potential for execution mis-steps and longer-than-expected sales cycles as the company looks to sell into adjacent areas,” Benjamin added.

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