Intramed Plus Acquisition And AI Will Improve Operational Efficiency

Key Takeaways

• Strategic investments in technology and process automation are enhancing operational efficiency and are expected to improve earnings margins and cash flow.
  
• Acquisitions and partnerships are expanding market presence and capabilities, offering opportunities for revenue growth and improved margins through synergies.
  
• Proposed tariffs, economic resets, and industry changes pose risks to Option Care Health's margins and revenue, especially if acute therapy growth slows or market dynamics shift.

Catalysts

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

• Option Care Health is experiencing significant growth in both acute and chronic therapies, with acute therapies seeing mid-teens growth due to supply chain improvements and investments in capabilities, likely boosting future revenue and earnings.
  
• The company's strategic investments in technology, such as robotic process automation and AI-embedded intelligence for patient registration, are expected to improve efficiency, increase cash collection velocity, and enhance earnings margins.
  
• The acquisition of Intramed Plus enhances Option Care's market presence and facility capabilities, especially in a growing region, providing opportunities for revenue and earnings expansion as operational synergies are realized.
  
• The expansion of relationships and demonstration of value with health plans, aligned with payer initiatives to reduce the total cost of care, supports potential revenue growth and improved net margins by increasing patient volume in cost-effective settings.
  
• Continued investments in advanced technology and nursing capabilities, as well as the implementation of strategic partnerships, are designed to enhance productivity and operational efficiency, contributing to improved EBITDA and margin expansion over time.

Option Care Health Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Option Care Health's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 4.5% in 3 years time.
• Analysts expect earnings to reach $293.8 million (and earnings per share of $1.78) by about April 2028, up from $213.8 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 22.1x on those 2028 earnings, down from 23.6x today. This future PE is lower than the current PE for the US Healthcare industry at 23.6x.
• Analysts expect the number of shares outstanding to decline by 4.81% 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 uncertainty and potential impact of proposed tariffs could lead to increased costs for medical supplies and pharmaceuticals, affecting Option Care Health's ability to maintain current margins and profitability. This could have a negative impact on earnings.
  
• The company faces a significant headwind from the Stelara economic reset, which is expected to negatively impact gross profit by $60 million to $70 million for the full year. This could affect net margins and overall earnings if not offset by other revenue growth.
  
• Despite strong growth in acute therapies, there is concern about the sustainability of this growth rate, as the first quarter results were influenced by specific competitive dynamics, which may not continue. If growth slows, future revenue might not meet expectations.
  
• Changes in industry dynamics, such as shifts in payer strategies or healthcare policy, may create risks in maintaining the same level of revenue and growth. For example, site neutrality and other reimbursement changes could pressure revenue streams.
  
• While the inclusion of biosimilars like Stelara in Option Care Health’s portfolio helps maintain revenue, any issues with uptake or pricing could pose risks to revenue growth. Additionally, reliance on a few products or treatments for a significant portion of revenue could impact net margins if there are market changes.

Valuation

• The analysts have a consensus price target of $38.444 for Option Care Health based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.5 billion, earnings will come to $293.8 million, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $30.69, the analyst price target of $38.44 is 20.2% 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.