Analyst: R1 RCM's Momentum Will Continue To Build Over Next Several Years

Hospital revenue cycle management company R1 RCM Inc. RCM is uniquely positioned to benefit from accelerating demand environment for outsourced RCM, an analyst at Baird said.

The Analyst

Analyst Matthew Gillmor upgraded R1 RCM from Neutral to Outperform and increased his price target from $7 to $9.

The Thesis

The RCM demand environment is likely to benefit over the next several years from the mounting secular pressures on providers, Gillmor said in a Monday note. Citing industry contacts, the analyst said hospitals are refocusing on RCM investments.

"Finally, our prior survey work suggests hospitals are increasingly receptive to outsourcing, especially for RCM," Gillmor said.

R1's EBITDA is likely to grow at a super-normal rate over the next several years, with all of the $225 million to $250 million in targeted EBITDA for 2020 expected to come from current clients, the analyst said.

"Additionally, the run-rate exiting 2020 should be even higher (perhaps >$250M), as margins will still be ramping and R1 should benefit from automation initiatives," Baird said.

The firm said the stock's 5-10 percent pullback from recent highs creates an attractive entry point.

The pending $460 million acquisition of Intermedix diversifies the company's revenue base into physician RCM, and expands relationship with key clients, the firm said.

Price Action

At time of writing, R1 shares were up 2.1 percent at $7.25.

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