Share price of Evolent Health Inc. EVH attained a new high of $20.48 on Jul 2, eventually closing a tad bit lower at $20.41. The company started trading publicly at the New York Stock Exchange (NYSE) on Jun 5, 2015. Net proceeds from the Initial Public Offering (IPO) were $209 million.
Key Growth Catalysts
Evolent is a provider of cloud-based software to healthcare companies. The company’s technology and platform help healthcare providers to cost-effectively manage population health by migrating from a Fee-For-Service (FFS) reimbursement to value-based payment models.
The migration happens in a couple of stages. In the transformation stage, Evolent works with the healthcare provider (called partner) to develop a strategic pan (Blueprint) for the transition to value-based model. Upon completion, the partner is transformed to the value-based operations stage under a long-term contract.
Evolent’s value-based operations comprise Identifi technology, Population Health Services and Financial & Administrative Management. As of Apr 30, 2015, the company had 10 long-term contracts. To secure these contracts, Evolent spent approximately 10% of total revenues, which was $100.9 million in 2014, as business development expenses. The company reported an operating loss of $52.5 million in 2014.
Currently, roughly 10% of healthcare payments are made through value-based care programs, which Evolent expects to increase over 50% by 2020. The company believes that its current total market opportunity is nearly $10 billion, which is estimated to increase to over $46 billion by 2020. This significant growth will be driven by increasing health insurance expenditures, which are forecasted to grow from $2.1 trillion in 2013 to $3.2 trillion by 2020.
Meanwhile, we believe that the long-term contracts ensure a significant recurring revenue base, which is a key positive. Moreover, the company will enjoy the first movers’ advantage in this rapidly growing market. However, customer concentration (four large partners contributing 76% of revenues) and an uncertain U.S. healthcare regulatory environment are headwinds.
Stocks to Consider
Currently, Evolent has a Zacks Rank #3 (Hold).
Better-ranked stocks in the same space include Paylocity Holding PCTY, TeleCommunication Systems TSYS and Workiva WK. All the stocks sport a Zacks Rank #1 (Strong Buy).
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