Jefferies Downgrades HMS Holdings (HMSY) to Hold; Valuation Full Amid Improved Outlook
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Jefferies downgrade HMS Holdings (Nasdaq: HMSY) from Buy to Hold, but lifts its price target from $19 to $23 upon revisit of valuation metrics.
Analyst David Windley commented today,
HMSY's traction among health plans, including with its novel prepay clinical review product, has buoyed Commercial growth and investor sentiment. However, we believe 20% Commercial growth and successful NJ reprocurement already are discounted in the stock, as evidenced by the +90% YTD move and premium NTM P/E valuation (vs. 3- and 5-yr historic averages). HMSY has topped our PT making risk/reward on near-term events unfavorable.
On key contracts:
Consensus expectations seem to already reflect retention of NJ, and we include $28M in 2017 revenue. HMS continues to wait for guidance from NJ on protest and/or reprocurement. Failing to secure NJ is a $2-3 risk to the stock. On Medicare RAC, HMS has submitted bids for multiple regions; awards could be made by year-end. Lower ADR limits and unattractive payment terms mean the economics of the new contracts will be (far) less attractive than the prior program.
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