Citi Reiterates $7 PT on Cano Health (CANO), Says Takeout Could Be Worth $14 on Roughly 2x Revenue
Citi analyst Jason Cassorla reiterated a Buy rating and $7.00 price target on Cano Health (NYSE: CANO).
The analyst comments "Another Takeout Headline Not Surprising: Multiple headlines over the past ~six months have suggested CANO could potentially be acquired. To this end, CANO traded at ~1.0x our 2023E revenue at an unaffected price of $6.31 (September 21st close), which compares to its SPAC merger multiple at ~3x forward revenue, and other recent deals in the space including AMZN’s bid for ONEM at ~2.8x consensus 2023 revenue estimates. Amid this multiple compression/dislocation, simplistically beyond being tethered to unprofitable comps / macro market dynamics, CANO has had difficulties as a publicly entity, including an accounting adjustment (link to note) and recent 2Q22 results (link to note) that have made it tough for CANO to afford a higher multiple in the public markets. Activist investors Third Point LLC ( 3/9, link) and Owl Creek (8/22, link) have also taken ownership stakes and have called for strategic alternatives, including an outright sale, to propagate equity value in the name. Amid these constructs, worries around CANO’s ability to self-fund its growth aspirations are real, particularly as at its investor day (link to note) mgmt suggested CFO breakeven for 2022, but two months later with 2Q results gave expectations for -$80M to -$90M of CFO for 2022. While as of 2Q22 CANO had ~$48M of cash, ~$120M of untapped revolver, and suggested no additional capital need to meet 2022 guidance, we believe there is consideration around funding future growth amid the market backdrop, and being under a larger company umbrella would effectively help offset this dynamic. We have not factored a takeout premium into our TP, but recognize other deals and current comps, which could suggest a take-out multiple in the ~2x revenue zone factoring some level of discount, or a takeout price of ~$14, in our view."
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Shares of Cano Health closed at $8.34 yesterday.