On Friday, B. Riley maintained a positive outlook on Performant Financial (NASDAQ:PFMT), maintaining a Buy rating and $8.00 price target on the stock. The firm’s position comes after Performant Financial’s division, Performant Healthcare Solutions, secured a three-year contract for Medicaid Recovery Audit Contractor Services, which will begin on April 7, 2025.
This contract represents a significant milestone for the company as it successfully replaces HMS/Veritas Capital, the previous nine-year contract holder. The total value of the HMS/Veritas Capital contract was $139.5 million.
The new contract is worth about $15.5 million annually. However, it should be noted that it could take more than 12 months to reach full scale. The win for Performant Financial is seen as pivotal because it not only ousts the incumbent but also establishes an early presence in the state’s Medicaid market.
The company estimates that this market represents a revenue opportunity of $300 million to $500 million. For context, the federal and commercial markets represent $500 million to $1 billion and $3.2 billion to $3.5 billion opportunities, respectively.
B. Riley analysts emphasized the importance of this contract win, calling it a “big win for the company.” The analysts’ reiteration of their Buy rating and price target reflect their confidence in the potential growth of Performant Financial following this new contract. The Medicaid Recovery Audit Contractor Services project is expected to be a strategic entry point for Performant Financial into a lucrative market segment, which could contribute significantly to the company’s earnings stream in the coming years.
In recent news, Performant Financial Corporation announced a significant increase in earnings for the first quarter of 2024, with revenue also growing significantly year over year.
The company has launched 10 new programs with existing clients, which are expected to generate between $5 million and $6 million in annual revenue. In addition to these financial highlights, Performant has also received the Interim New York State Medicaid Recovery Audit Contractor (RAC) award, strengthening its established position in the government sector.
Performant’s Competency and Clinical Audit businesses reported growth of 7% and 19%, respectively. The company also announced the acquisition of RecordsOne, a move to improve audit workflow processes. These are some of the recent developments that demonstrate Performant’s strategic initiatives to sustain growth and improve operational efficiency.
In governance news, Lisa C. Im and Bradley M. Fluegel were elected as Class 3 directors at the annual meeting of shareholders. The company’s independent auditor, Baker Tilly US, LLP, was ratified for the fiscal year ending December 31, 2024. Shareholders also approved amendments to the company’s 2012 Stock Incentive Plan and 2024 Employee Stock Purchase Plan.
Despite operating expenses of $31.3 million, Performant’s adjusted EBITDA beat expectations by minus $1.2 million. The company maintained its full-year guidance, expecting healthcare revenues of $117 million to $120 million and total company revenues of $124 million to $129 million.
InvestingPro Insights
As Performant Financial (NASDAQ:PFMT) gains attention with its new Medicaid Recovery Audit Contractor Services contract, InvestingPro data provides additional context on the company’s financial position. With a market cap of $277.88 million as of Q2 2024 and revenue growth of 10.77% over the past 12 months, the company is on a notable upward trajectory. However, investors should note that the company’s P/E ratio is -42.05, reflecting its lack of profitability at the moment. Nevertheless, Performant Financial is trading near its 52-week high, and is 94.74% of that high, suggesting investor optimism.
Among the InvestingPro tips, it is worth highlighting that analysts do not expect the company to make a profit this year, which is consistent with the negative P/E ratio. Nevertheless, Performant Financial’s current assets exceed its short-term liabilities, indicating a solid financial position that can cover immediate obligations. The company also operates with a moderate level of debt, which should provide some reassurance to risk-averse investors. For those who want a more in-depth analysis, there is an additional InvestingPro tip at https://www.investing.com/pro/PFMT.
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