Baird: Healthcare Services Group 'Fairly Valued Until Top-Line Growth Reaccelerates'

While Healthcare Services Group, Inc. HCSG’s market opportunity and value proposition remain robust in the long run, the company must focus on margin improvement to reaccelerate growth, according to Baird.

The Analyst

Baird’s Andrew Wittmann downgraded shares of Healthcare Services Group from Outperform to Neutral and lowered the price target from $58 to $50.

The Thesis

Revenue growth is likely to be subdued as management concentrates their efforts on operational execution and margin improvement, Wittmann said in a Wednesday note. (See the analyst's track record here.) 

“With [a] revenue-growth-led thesis giving way to a temporary period of margin-focused improvement, we believe shares appear fairly valued until top-line growth reaccelerates," the analyst said. 

While revenue from the company’s dining segment was strong thanks to large contract wins, Healthcare Services Group experienced margin pressure due to the start-up and integration costs associated with this segment, Wittmann said. 

“We sense a period of digestion might be underway at HCSG after 2017's tremendous growth takes a backseat to garnering operational efficiencies from integrating the new business.”

Price Action

At the time of publication, shares of Healthcare Services Group were trading down 5.94 percent at $47.98. 

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