Advanced Practitioner Model Expansion Will Offer Comprehensive Infusion Care

Key Takeaways

• Expansion with Intramed Plus and innovative practitioner models boosts presence and capabilities, likely enhancing revenue and operational efficiency.
  
• Strategic investments in facilities and supply chain improvements are poised to drive care quality, patient onboarding, and elevate high-margin revenue streams.
  
• Intense competition, procurement challenges, and supply chain disruptions may affect revenue, profitability, and long-term EPS growth, despite potential boosts from share repurchases.

Catalysts

Offers home and alternate site infusion services in the United States.

• The acquisition of Intramed Plus expands Option Care Health's presence in the Southeastern United States and enhances their capabilities with the advanced practitioner model, likely contributing to revenue growth and operational efficiencies.
  
• The continued investment in a national network of compounding pharmacies and infusion suites, including the opening of new state-of-the-art facilities, is expected to support high-quality, responsive care that drives revenue and margin improvements.
  
• The new $500 million share repurchase authorization, coupled with strong free cash flow generation, provides a catalyst for earnings per share (EPS) growth through share buybacks.
  
• The advanced practitioner model expansion aligns with the strategy to offer comprehensive infusion care, potentially increasing revenue by accessing more complex therapy niches.
  
• Successful navigation of supply chain improvements, particularly in IV solutions, enables the onboarding of new patients in the acute therapy portfolio, which supports higher-margin revenue streams.

Option Care Health Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Option Care Health's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 4.6% in 3 years time.
• Analysts expect earnings to reach $292.9 million (and earnings per share of $1.85) by about March 2028, up from $211.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.9x on those 2028 earnings, down from 26.5x today. This future PE is lower than the current PE for the US Healthcare industry at 24.9x.
• Analysts expect the number of shares outstanding to decline by 4.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Option Care Health Future Earnings Per Share Growth

Risks

• The impact of less favorable economics for Stelara, estimated at $60 million to $70 million for the year, could negatively affect gross profit and earnings as the company manages therapy portfolio dynamics.
  
• The presence of over 800 home infusion providers creates significant competition, which could impact revenue growth and market share.
  
• Challenges in scaling procurement and technology tools for acquisitions like Intramed Plus may delay expected improvements in EBITDA margins, affecting overall profitability.
  
• While share repurchase programs can boost adjusted earnings per share, the need for accretive acquisitions to create sustained value may limit capital deployment flexibility, impacting long-term EPS growth.
  
• Supply chain disruptions and shifts in the competitive acute therapy market could create revenue volatility if not managed effectively, impacting revenue consistency and operational costs.

Valuation

• The analysts have a consensus price target of $37.778 for Option Care Health 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 $41.0, and the most bearish reporting a price target of just $33.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.4 billion, earnings will come to $292.9 million, and it would be trading on a PE ratio of 21.9x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $34.01, the analyst price target of $37.78 is 10.0% 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.