Barrington Research Initiates Providence Service Corp At Buy

Analysts at Barrington Research initiated coverage of Providence Service Corp (NASDAQ: PRSC) today by issuing a Buy rating on the stock and setting a price target of $49.00. Providence provides home and community-based social service transportation for children.
The numbers
Barrington analyst Michael Petusky expects that the human services segment will see margin improvements in upcoming years, and Barrington is projecting strong top-line growth for Providence. Petusky explains in detail where the $49 target came from. “We arrive at our price target by attaching an 8x multiple to our 2015 EBITDA estimate and a 7.3x multiple to our 2016 EBITDA expectation.”
Putting skin in the game
In late November, Providence CFO Robert Wilson purchased $276,450 shares of the company’s stock at a price of $36.86. While insider buying is not a perfectly reliable indication of future stock price, it is certainly reassuring to Providence shareholders to see that management is confident in the future.
Major upside
Providence stock is up two percent on the news and is currently trading at around $36.70. The $49 price target represents a 33.5 percent upside for the stock from current levels. Providence stock has already had an exceptional 2014. The stock is up over 45 percent year to date.
A valuation perspective
Providence’s current price to earnings (P/E) ratio of 32.5 may seem high, but the rapid earnings growth that is projected for the company brings down its forward P/E to a very reasonable 15.1. The company’s debt to equity ratio of 1.1 is not ideal, but high debt levels can be typical of expanding companies. Providences projected annual earnings growth rate over the next five years is an impressive 15 percent.