Florida And Nevada Expansions Will Strengthen Community Oncology Care

Key Takeaways

• Rapid expansion of value-based contracts and scaled risk-based care models is driving strong patient growth, margin expansion, and sustainable top-line gains.
  
• Market tailwinds, tech investments, and growing pharmacy operations position the company for durable demand, lower costs, and increased profitability.
  
• Reliance on fluctuating reimbursements, costly expansion, inflationary pressures, limited differentiation, and intensifying competition threaten margins, revenue growth, and long-term market position.

Catalysts

An oncology company, provides various medical oncology services in the United States.

• The company's recent contract wins and expansions, especially in Florida and Nevada, are rapidly increasing patient lives under value-based arrangements; as these new contracts mature and more patients transition into TOI's care model, revenue per patient and overall patient volumes are positioned for strong growth, supporting top-line expansion.
  
• Ongoing adoption and scaling of delegated, risk-based value contracts (where TOI manages utilization and claims) is expected to drive margin expansion as operational discipline and care management are optimized, reducing cost of care versus reimbursement and improving net margins over time.
  
• The continued aging of the U.S. population and rising cancer incidence rates will support sustained, robust demand for community-based oncology care, expanding the total addressable market and underpinning durable revenue growth potential for TOI.
  
• Significant investments in A.I. and technology-driven process improvements (including revenue cycle management, prior authorizations, and patient call centers) are expected to further lower operational expenses as a percentage of revenue, yielding margin expansion and a faster path to sustainable profitability.
  
• Accelerating growth of TOI's pharmacy business-driven by higher patient volumes, expanded in-house dispensing, and improved drug procurement-stands to boost both revenue and gross margins, supported by long-term advances in cancer therapeutics and personalized medicine that increase ongoing treatment needs.

Oncology Institute Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Oncology Institute's revenue will grow by 19.5% annually over the next 3 years.
• Analysts are not forecasting that Oncology Institute will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Oncology Institute's profit margin will increase from -12.8% to the average US Healthcare industry of 5.4% in 3 years.
• If Oncology Institute's profit margin were to converge on the industry average, you could expect earnings to reach $39.0 million (and earnings per share of $0.34) by about August 2028, up from $-54.1 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 24.9x on those 2028 earnings, up from -6.3x today. This future PE is greater than the current PE for the US Healthcare industry at 21.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Oncology Institute Future Earnings Per Share Growth

Risks

• Ongoing dependence on Medicare Advantage, Medicaid, and risk-based contracts exposes Oncology Institute to unpredictable changes in reimbursement rates and healthcare policy, which could directly affect future revenue and lead to earnings volatility if policy trends move unfavorably.
  
• Rapid expansion into new geographies and the onboarding of large capitated contracts entail significant operational and integration risks (early contracts have lower margins, require active management, and take time to mature), introducing uncertainty around short
• and long-term net margin improvement and delaying the realization of full revenue potential.
  
• Heightened inflation, persistent drug cost increases, and the potential for rising labor expenses-across both clinical and administrative staff-pose risks to cost containment efforts and could put sustained pressure on net margins despite improvements in operating leverage.
  
• The outsourcing of clinical trials and lack of proprietary ancillary services may limit Oncology Institute's long-term ability to differentiate itself, curtailing new revenue streams and constraining competitive advantage, which could suppress topline revenue growth opportunities.
  
• Intensifying competition from large integrated health systems, academic centers, and aggressive pharmacy benefit managers (PBMs), especially as they shift high-margin infusion drugs to their own networks, could erode Oncology Institute's pharmacy volumes and market share, negatively impacting both revenue and net margins over time.

Valuation

• The analysts have a consensus price target of $7.0 for Oncology Institute 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 $6.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $724.8 million, earnings will come to $39.0 million, and it would be trading on a PE ratio of 24.9x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $3.67, the analyst price target of $7.0 is 47.6% 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.