R1 RCM's Robust Client Base And $1.2 Trillion Potential: The Growth Forecast By Analyst

Cantor Fitzgerald Research analyst Sarah James initiated coverage on R1 RCM Inc. RCM with an Overweight rating and a price target of $20.

The analyst is particularly upbeat about R1's client base, which comes with $900 billion net patient revenue (NPR), with an addressable market for an incremental $1.2 trillion.

The analyst sees upside levers from cross-selling Cloudmed and R1, coupled with increased use of technology to drive efficiency for R1 and its clients.

The cross-selling opportunities between legacy R1 and recently acquired Cloudmed as driving multi-year revenue growth above industry trends over the next five years, the analyst notes.

James also highlights the company's market dynamics increasing provider demand for comprehensive solutions to revenue stability.

Through scale and efficiency, management intends to expand adjusted EBITDA margin to 30% (medium-term guide) from 23.6% in 2022. 

The analyst is forecasting expansion to 28.3% in 2025.

The analyst believes R1's target market of externally sourced RCM will outpace the growth of the overall market as margin-constrained providers seek to solidify revenue streams and lower expenses.

The volume strength shown by providers in 2Q23 could set RCM up for a strong 3Q23E and beyond if pent-up surgical demand materializes, James adds.

For FY23, the analyst sees revenues of $2.266 billion, with $607.4 million EBITDA.

For FY24, the analyst projects $2.712 billion in revenues, with $739.8 million EBITDA.

Price Action: RCM shares are trading lower by 1.25% to $16.59 on the last checked Tuesday.