Change Healthcare (CHNG) https://www.changeheealthcare.com on a post quarterly conference call with Credit Suisse https://www.credit-suisse.com, reviewed their FY 1Q21 results. Management noted that volumes seem to be holding at the level of down 8% vs pre-COVID level.
However, given what is happening in different geographies, CHNG does not see the burst of activity occurring such as appeared at the end of the lockdown period. It now seems that people are less likely to avoid going to see medical providers and more people are more disinclined to go to hospitals since the positivity rate in many states has increased the fear of getting infected. Overall CHNG does not see an obvious recovery in utilization as fast as they had hoped.
In terms of recovery for the rest of FY 21, management sees the progression as a straight line recovery from now until the end of the year in a linear progression which will move to around a couple of percentage points which was down during FY4Q21 before to returning to pre-COVID levels.
For FY22, CHNG expects to grow at a rate faster than their long term revenue outlook of 4-6% and EBITDA outlook of 6-8% given the low base of FY21. However, management has been advised to not use 4-6% two year Compound Annual Growth Rate (CAGR) on revenue and 6-8% on EBITDA from FY20 in order to get to FY22 levels. In fact, management sees the growth rate somewhere in between the two approaches in FY 22.
With respect to the $2.5 billion potential opportunity for cross selling between McKesson and CHNG legacy clients which the company has flagged in the past, management did not disclose what percentage has been captured.
However, the company did note that potentially the opportunity has trended higher as CHNG has continued to add new solutions into the mix that can be sold into the customer base. Separately, CHNG has realized approximately $9 million of incremental synergies in FY1Q21, but the company does not plan on getting to all of the expected $50 million synergies in FY21.
Credit Suisse analysts are updating their model for FY1Q21 results. Their FY21 revenue and EBITDA estimates are $3,055 million and $862 million versus $2,984 million and $840 million as stated previously.
Analysts for FY21 report Estimated Earnings per Share (EPS) now at $1.07 versus $0.94 previously. Their FY22 and FY23 EPS estimates are unchanged. And the TP of $16 remains unchanged. However, risks can include a major contract loss, high leverage limiting financial flexibility etc.
For more information and to provide feedback, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.