Leerink cuts American Renal to MP but ups PT to $27

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Leerink downgraded American Renal Associates (NYSE:ARA) to “market perform” but raised its price target to $27 from $17, citing a fuller valuation after the company reported fourth quarter results. The stock closed at $23.52 on March 7.

The company is a leading provider of outpatient dialysis services. At the end of 2017, it operated 228 dialysis clinic locations in 26 states, serving about 15,600 patients with end stage renal disease.

Analyst Ana Gupte writes that the fourth quarter was good, with margin upside offset by a modest treatment growth slowdown in part predicated by hurricanes and other one-timers. Management has done a solid job managing cost structure and G&A expenses, despite flat rate updates in Medicare, she added.

Ms. Gupte said volume growth is expected to accelerate through 2018 as back half loaded 2017-de novo clinics come on stream to the high end of non-acquired treatment growth guidance of 6.5% to 7.5%.

She also said 2019 offers a return to normalized low double digit EBITDA, less non-controlling interest growth, as margins expand further with a very low single digit positive Medicare base rate update, along with increased adoption of Mircera for the treatment of renal anemia.