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Hawk’s Nest

Call Buyers Target Laggard Mid-Year IPO Focused on Growing MA Market

by | Nov 1, 2021

Agilon Health (AGL) a mid-year IPO that has been fairly quiet since its debut but drawing elevated call buying the last two sessions including 2,750 January $30 calls on 11/1 and over 5,500 of the November $22.50 calls on 10/29. AGL debuted around $28 before trading up as high as $44 and fading mid-year. Shares are trying to carve out a multi-week base now around the $23 level and move back above $26 into the prior range. A bigger volume node sits up at $31.50. The $9.45B company trades 5.6X sales and 8.75X cash. AGL projects mid-40% revenue growth in FY21 and 38% in FY22. AGL focuses on healthcare services for seniors through primary care physicians in the US. The company focuses on the fastest-growing element of managed care, Medicare Advantage, and specializes in moving practices away from fee-for-service and into capitation. The company has grown through partnerships with physicians, mostly long-term deals of 20 years, that gives them long-term visibility and exclusivity to grow without a huge capital intense investment. The Total Care Model also allows for better aligned economics with outcomes, like-minded physicians building a successful platform that benefits everyone, and a place to best practices to be shared and drive clinical innovation. The platform is also built by physicians, so its usability and purpose is better aligned with what physicians actually need in the field. AGL says their platform includes capabilities across financial management, data integration and insights, and payor engagement as well as analytics, direct contacting and more. AGL sees a massive opportunity with seniors as the population grows and MA enrollment is expected to be as much as 43M by 2030 vs 24M in 2020. They also see the structural shift in how healthcare is viewed with a focus on outcomes, giving more preference to value-based payments as payors look for ways to control costs. AGL is coming off a beat-and-raise quarter with FY22 guidance above forecasts. Analysts have an average target for shares of $39.50 with a Street High $45. Jefferies starting coverage at Buy on 10/20 seeing the company well-positioned to benefit from the accelerating adoption of value-based healthcare delivery and payment models. The firm particularly likes the company’s physician partnership model, which gives it good visibility into out-year trends and requires fairly low capital to execute. Cowen positive on 9/9 noting that Agilon’s virtual acquisition structure via twenty-year long-term joint ventures is well-positioned to ‘consolidate’ physician practices that choose to remain independent yet need a facilitator to transition their Medicare Advantage patients away from fee-for-service to capitation. Short interest is 1.5%. CD&R is a big holder out of private equity while Rock Springs Capital a buyer of 7M shares and Durable Capital with 6.2M shares.  Insiders also active in the IPO with two different directors buying stock at $23 including a $500K individual buy.