Advanced AI And Cloud RCM Will Transform Digital Healthcare

Key Takeaways

• Advanced AI adoption and cloud-based solutions are enhancing operational efficiency, expanding market reach, and driving strong cross-sell activity and recurring revenue growth.
  
• Industry shifts toward digital payments and high cybersecurity standards position Waystar as a trusted leader, supporting high-margin revenue and long-term earnings expansion.
  
• Rising competitive, regulatory, and industry pressures threaten Waystar's revenue growth, margins, client retention, and long-term demand for its traditional RCM platform.

Catalysts

Develops a cloud-based software solution for healthcare payments.

• Rapid adoption of advanced AI and automation solutions (e.g., AltitudeAI, Auth Accelerate) is resulting in significant improvements in claim approvals, appeals, and prior authorizations, driving both measurable operational efficiencies for providers and increased ROI, which is fueling robust cross-sell activity and net revenue retention (114%)-likely to sustain and accelerate top-line revenue growth.
  
• Accelerating healthcare digitalization and increased provider focus on productivity and operating cost reduction-especially amid macro volatility-are creating new budget allocations for mission-critical cloud-based RCM and payment automation, expanding Waystar's addressable market and supporting durable subscription and volume-based revenue growth.
  
• The industry-wide shift towards patient-as-payer models and rising patient utilization rates are driving higher demand for digital patient payment solutions; Waystar continues to outperform historical norms in this segment (notably the 30% of revenue), which will likely support outsized volume-driven revenue and margin expansion if these trends persist.
  
• Elevated barriers to entry in RCM due to growing cybersecurity requirements and client trust concerns (proven through client wins post-competitor cyberattack and industry accolades for best-in-class security) position Waystar as a preferred, stable, at-scale platform, enabling it to win share and maintain high-margin, recurring SaaS revenue streams.
  
• Ongoing investment in automation and AI (for both client-facing offerings and internal operations) is expected to deliver greater operating leverage, further improving adjusted EBITDA margins (sustained above 40%) and unlevered free cash flow conversion, enhancing long-term earnings growth and capacity for disciplined M&A or debt reduction.

Waystar Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Waystar Holding's revenue will grow by 9.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 18.0% in 3 years time.
• Analysts expect earnings to reach $228.7 million (and earnings per share of $1.2) by about July 2028, up from $26.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $174.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 51.3x on those 2028 earnings, down from 244.2x today. This future PE is lower than the current PE for the US Healthcare Services industry at 59.7x.
• Analysts expect the number of shares outstanding to grow by 3.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.88%, as per the Simply Wall St company report.

Waystar Holding Future Earnings Per Share Growth

Risks

• Increasing advances in automation and AI may lower barriers to entry for new RCM or fintech-enabled healthcare start-ups, intensifying market competition and potentially eroding Waystar's pricing power and client retention, which could negatively impact future top-line revenue and EBITDA margins.
  
• Ongoing healthcare consolidation and payer-led downward pricing pressure may constrain provider budgets for outsourced RCM solutions, which could limit Waystar's ability to grow revenue among larger health systems and compress net margins over time.
  
• Persistent industry movement toward value-based care and bundled payments may reduce the long-term demand for traditional fee-for-service-oriented RCM platforms like Waystar's, shrinking the addressable market and threatening revenue growth and earnings visibility.
  
• Heavy reliance on cross-selling to newly acquired clients, particularly those gained during disruption events (like the recent cyberattack at a competitor), may result in elevated client churn or revenue contraction if these health systems revert to previous vendors or develop in-house RCM capabilities, posing risks to earnings stability and net revenue retention.
  
• Increasing regulatory scrutiny and evolving privacy legislation (such as stricter HIPAA enforcement or potential new data privacy laws) may drive higher compliance costs and legal risks for companies handling large volumes of healthcare data, which could suppress net margins and threaten business models dependent on large-scale data aggregation.

Valuation

• The analysts have a consensus price target of $48.214 for Waystar Holding 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 $1.3 billion, earnings will come to $228.7 million, and it would be trading on a PE ratio of 51.3x, assuming you use a discount rate of 7.9%.
• Given the current share price of $36.57, the analyst price target of $48.21 is 24.2% 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.