Avondale Adds Civitas Solutions To Conviction List

Following meetings with management, Avondale’s Paula Torch expressed confidence in Civitas Solutions Inc’s CIVI “ability to execute on its long-term growth opportunities.”

The analyst maintained a Market Outperform rating on the company, with a price target of $31.

Compelling

Torch sees the current stock valuation as compelling, and believes that it presents a buying opportunity, given the company’s growth trajectory.

“We are adding CIVI to Avondale's conviction list as we believe 2Q is intact fueled by M&A with potential catalysts for 2H. In our view, there are aspects to the story that are misunderstood and/or not receiving the deserved credit,” Torch stated.

The analyst also pointed out that 2016 would be an investment year for Civitas Solutions, in order to drive accelerated organic growth in 2017 and 2018. Therefore, “investors with a long-term horizon could capitalize in the future on an investment today,” the analyst said.

Growth

The company witnesses stable reimbursement and industry tailwinds have been helping to drive volume.

Torch expects Civitas Solutions to be able to sustain stable organic growth of 4-6 percent, driven by 2-3 percent M&A growth, “which is on a path to double in size further driving topline.”

Given that corporate overheads are unlikely to grow as fast as the top line, the analyst also believes that the company could achieve modest margin expansion going forward.