Integration With Pardini Group And Key Acquisitions Will Extend The Service Footprint

Key Takeaways

• Strategic acquisitions and expanded service offerings are driving revenue growth and enhancing operational synergies with geographic expansion and market share gains.
  
• Digitalization and mobile services are improving customer satisfaction and efficiency, potentially boosting net margins and earnings with minimal investment.
  
• Heavy reliance on acquisitions for growth poses integration risks, with macroeconomic and regulatory challenges potentially impacting revenue, margins, and profitability.

Catalysts

Provides medical services in the diagnostic, treatment, clinical analysis, health management, medical care, orthopedics, and ophthalmology areas in Brazil.

• The successful integration with Pardini Group has captured operational synergies and expanded geographic presence, providing opportunities to strengthen revenue generation through market share gains and expanded service offerings. This is expected to positively impact future revenue growth.
  
• The expansion of Fleury's B2C diagnostic services, combined with strategic acquisitions like Grupo San Lucas and Confiance Medicina Diagnóstica, is set to enhance operational synergies and footprint, driving future revenue growth and potentially improving earnings.
  
• Implementation of new integrated centers, such as for Endometriosis and Neurology, enhances service differentiation and patient experience, which could lead to increased revenue and potentially higher margins due to the premium nature of these offerings.
  
• Digitalization and the use of AI in scheduling and operations have already improved customer satisfaction and reduced costs, suggesting ongoing opportunities to enhance operating efficiency and possibly improve net margins.
  
• The expansion of mobile services, which showed substantial growth in 2024, offers opportunities to increase revenue with relatively low investment, positively impacting both earnings and return on invested capital (ROIC).

Fleury Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fleury's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 9.2% in 3 years time.
• Analysts expect earnings to reach R$858.9 million (and earnings per share of R$1.59) by about May 2028, up from R$616.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as R$994 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, up from 11.4x today. This future PE is greater than the current PE for the BR Healthcare industry at 11.4x.
• Analysts expect the number of shares outstanding to decline by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 17.7%, as per the Simply Wall St company report.

Fleury Future Earnings Per Share Growth

Risks

• The company's strategy relies heavily on acquisitions to drive growth, such as the purchase of Grupo San Lucas and Confiance Medicina Diagnóstica, which requires significant capital allocation and poses integration and execution risks that may impact net margins if not managed efficiently.
  
• The revenue growth in key segments such as B2B and New Links is contingent on specific market conditions and acquisitions, which makes future revenue targets vulnerable if these conditions change or acquisitions fail to yield expected synergies.
  
• The competitive landscape and potential regulatory changes in the healthcare industry could affect pricing power and market share, potentially impacting revenue and net margins, especially with discussions around outpatient services regulatory affairs.
  
• Currency fluctuations and unforeseen macroeconomic challenges in Brazil can impact operational costs and supply chain efficiency, which could adversely affect earnings due to increased expenses and reduced profitability.
  
• The dependence on maintaining high customer satisfaction and strong relationships with healthcare providers for revenue growth could be a risk if there are disruptions in service quality or competitive pressures increase, potentially reducing revenue and EBITDA margins.

Valuation

• The analysts have a consensus price target of R$14.955 for Fleury based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$19.5, and the most bearish reporting a price target of just R$11.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$9.3 billion, earnings will come to R$858.9 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 17.7%.
• Given the current share price of R$12.92, the analyst price target of R$14.95 is 13.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.