Telehealth And Brazil's Aging Population Will Transform Medical Education

Key Takeaways

• Afya is poised for sustained, above-consensus growth and margin expansion due to Brazil's physician shortage, demographic forces, and digital health penetration.
  
• Scalable operations, accretive acquisitions, and strong capital allocation establish Afya as a dominant consolidator and digital infrastructure leader in Brazilian healthcare education.
  
• Rising competition, regulatory risks, lower pricing power, and external economic pressures threaten Afya's revenue growth, margin expansion, and efforts to diversify into continuing education.

Catalysts

Operates as a medical education group in Brazil.

• Analysts broadly agree that continued seat expansion and acquisitions will drive strong revenue growth, but this view likely understates the massive tailwind Afya stands to capture as Brazil's demographic trends and persistent physician shortage push demand and tuition pricing power well above consensus over the coming decade, supporting outsized, compounding revenue growth and higher margins.
  
• While operational leverage and disciplined cost initiatives are cited as margin catalysts, the analyst consensus significantly underappreciates the further step-changes possible from Afya's highly centralized, shared-service model and ongoing acquisition integration, leading to EBITDA margins not just above historical highs but potentially industry-leading as scale accelerates.
  
• Afya's rapid scaling and deep penetration in digital health, already evidenced by 302,000 active users, positions it to become the critical digital infrastructure for Brazil's medical community, driving unprecedented recurring revenues from digital subscriptions, B2B medical practice solutions, and tech-enabled medical education with structurally higher margins than traditional segments.
  
• The ongoing transformation of Brazil's healthcare system, with rising investments from both public and private sectors in medical education and digital health, inherently expands Afya's total addressable market, enabling the company to capture a disproportionate share of secular growth in student enrollment, tuition, and healthtech services, fueling sustained multi-year revenue and earnings expansion.
  
• Afya's significant buyback program and resilient capital structure in a consolidating market enable aggressive accretive M&A at attractive multiples, enhancing EPS growth beyond organic improvements and positioning the company as the dominant consolidator in Brazilian medical education and health solutions.

Afya Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Afya compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Afya's revenue will grow by 9.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 19.6% today to 25.3% in 3 years time.
• The bullish analysts expect earnings to reach R$1.2 billion (and earnings per share of R$13.03) by about August 2028, up from R$694.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 14.7x on those 2028 earnings, up from 10.9x today. This future PE is lower than the current PE for the US Consumer Services industry at 17.7x.
• Analysts expect the number of shares outstanding to grow by 0.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.18%, as per the Simply Wall St company report.

Afya Future Earnings Per Share Growth

Risks

• Intensifying competition from new and existing medical schools, especially after recent approvals of additional seats and new institutions, has reduced candidate ratios and could compromise full occupancy and pricing power, negatively impacting long-term revenues and enrollment growth.
  
• The ticket price growth for medical education is trending below inflation, due to larger discounts from government loan programs such as FIES, which may compress net revenue per student and limit the ability to offset rising operational costs, reducing future net margins.
  
• The drop of 29% year-over-year in the residency journey segment and signs of intense competition in this area indicate structural shifts in student preferences or rising competition, which could undermine Afya's efforts to diversify and grow revenue in Continuing Education over the long term.
  
• Substantial reliance on regulated and finite numbers of medical seats (with 86% of revenue from medicine programs) leaves Afya exposed to any regulatory freeze, cap, or adverse policy changes regarding licenses, which would immediately constrain revenue growth and limit earnings expansion.
  
• Persistent macroeconomic volatility and new tax legislation implementing the OECD Pillar Two rules are tightening disposable incomes and raising the company's effective tax rate over time. This environment risks higher tuition defaults, weaker student demand, and upward pressure on compliance costs, ultimately squeezing earnings and lowering the potential for net income growth.

Valuation

• The assumed bullish price target for Afya is $25.62, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Afya's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.62, and the most bearish reporting a price target of just $14.42.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be R$4.7 billion, earnings will come to R$1.2 billion, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 11.2%.
  
• Given the current share price of $15.42, the bullish analyst price target of $25.62 is 39.8% 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.