Auriga Downgrades MedAssets (MDAS) to Hold; 'Good News' Already Priced In

October 27, 2009 8:01 AM EDT

Auriga downgrades MedAssets (Nasdaq: MDAS) from Buy to Hold. Price target $25.

Auriga analysts says, "We are downgrading MDAS to HOLD ahead of earnings on Wednesday as we do not envision substantial upside to the shares in the intermediate term based on our FY10 estimates. That said, we are increasing our price target modestly (to $25 from $24), reflecting a PEG of 1.0, which is consistent with the average for hospital IT comps. We find MDAS’ forward EV/revenue multiple rich at nearly 4x, relative to the broader healthcare IT group at 2.5x. Meanwhile, we believe the company is executing well and believe it should meet our revised Q3 EPS estimate of $0.19 on $85 million (consensus at $0.19 on $84 million). We also think some recent large contracts position the company favorably for the long term. However, based on our forecast and given that management will refrain from offering FY10 guidance until December, we have difficulty recommending that investors establish and/or add to positions at current levels...Our revised full-year estimates are $109 million in EBITDA and $0.78 in adjusted EPS, down from $111 million and $0.80, respectively, owing to the necessary investment in human capital to deliver on the contract...Raising FY10 revenue estimate while maintaining EPS estimate as Barnabas contract is lower margin: In a recent business update, MDAS guided that St. Barnabas will add $17 million-$20 million to annual revenues beginning in FY10 and $0.03-$0.05 in adjusted EPS. As such, we are upping our FY10 revenue estimate by $15 million (reflecting some level of conservatism). However, we are maintaining our adjusted FY10 EPS estimate of $1.00..."

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