Leerink Partners Downgrades Team Health (TMH) to Market Perform
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Leerink Partners downgraded Team Health (NYSE: TMH) from Outperform to Market Perform with a price target of $43.00 (from $40.00).
Analyst Ana Gupte commented, "Our downgrade is driven by the issues faced in IPC and recent operational challenges. The recent rally on the likelihood of a deal offers an opportunity to downgrade though we see the deal as more likely than 50% and raise our PT to $43 from $40. We see downside to 3Q and predicate the downgrade on a lack of certainty to the sale. While the new CEO Leif Murphy is likely to be a motivated seller based on the terms of his employment contract and the sale, in our view, could fetch a price in the low to mid 40s per share, a sale is by no means certain with the activist presence likely to negotiate for a higher price. We see risks to 2H16 EBITDA achievability after our Nashville meetings with Mike Snow, ex CFO, and David Jones, CFO, given the physician attrition pressure in the acquired IPC asset, as well as potential delays in Managed Care contracting, BPCI and cross selling synergies. We see secular pressures in the Hospital ED business from a move to Urgent Care and over time to Free Standing EDS even in the TMH markets that is likely driving some of the weakness in net new contract growth. Leverage ratio of 5.1x hampers the M & A growth story. We see the operational challenges on same store contracts, new contract terminations, and IPC business as meaningful enough to keep us on the sidelines. Our new PT of $43 contemplates an EV to EBITDA of 9.7x our 2017 EBITDA estimate."
Shares of Team Health closed at $39.95 yesterday.
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