Expansion In Care Programs Will Unlock Opportunities Despite Revenue Risks Ahead

Key Takeaways

• DocGo's expansion in care programs and municipal health services presents significant future revenue growth opportunities.
  
• Technological advancements and infrastructure scaling open paths for high-margin revenue and sustained profitability.
  
• The winding down of migrant-related revenues and reliance on new programs pose risks to revenue growth and earnings stability due to increased expenses and execution challenges.

Catalysts

Provides mobile health and medical transportation services for various health care providers in the United States and the United Kingdom.

• DocGo is rapidly expanding its care gap closure programs, which have more than doubled the number of assigned lives and are targeting a run rate of 1,000 visits per week by year-end, indicating potential for significant future revenue growth.
  
• The company is enhancing its payer and provider vertical by aggressively scaling infrastructure, anticipating growth in primary care and virtual care management programs, which can elevate future earnings through increased service offerings.
  
• DocGo’s strategic expansion in the municipal population health vertical, including new contracts and extensions, positions it to leverage its expertise for large government contracts, potentially boosting future revenue streams.
  
• The transition of resources from winding down migrant-related programs to new non-migrant initiatives while maintaining cash flow visibility enhances operating margins and positions the company for sustained profitability.
  
• DocGo's technological advancements, including potential SaaS offerings, provide opportunities to generate new revenue streams at high margins, supporting both top-line growth and improved net margins.

DocGo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DocGo's revenue will decrease by -20.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.4% today to 1.5% in 3 years time.
• Analysts expect earnings to reach $5.3 million (and earnings per share of $0.04) by about January 2028, down from $30.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 169.7x on those 2028 earnings, up from 15.7x today. This future PE is greater than the current PE for the US Healthcare industry at 23.7x.
• Analysts expect the number of shares outstanding to grow by 6.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

DocGo Future Earnings Per Share Growth

Risks

• The planned reduction in migrant-related revenues, which are expected to wind down significantly by the end of 2024, creates a risk of revenue decline in both 2024 and 2025, potentially impacting overall revenue growth.
  
• The emphasis on rapidly expanding operations and staffing in new markets may increase initial expenses, affecting net margins and potentially leading to lower-than-expected profitability.
  
• The projected SG&A increase as a percentage of total revenues due to decreasing revenues from winding down migrant programs may compress net margins and reduce operating efficiency.
  
• The dependence on expansion and investment in new payer programs creates execution risk; if these programs do not generate expected returns, their costs could negatively impact earnings.
  
• The anticipated continued decline in mobile health revenues as the migrant projects end, paired with reliance on care gap closure programs for growth, presents a risk if these programs underperform, potentially impacting revenue and earnings stability.

Valuation

• The analysts have a consensus price target of $6.21 for DocGo 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 $8.0, and the most bearish reporting a price target of just $5.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $348.7 million, earnings will come to $5.3 million, and it would be trading on a PE ratio of 169.7x, assuming you use a discount rate of 5.9%.
• Given the current share price of $4.78, the analyst's price target of $6.21 is 23.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.