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Surgery Partners: Loss Making Yet A Promising Opportunity In The Surgical Services

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Thesis:

Surgery Partners, Inc. (NASDAQ:SGRY) is good positioned for maturation and presents an finance opportunity. The institution has shown a coagulated capacity successful nan 3rd 4th of 2022, pinch a YoY summation of 15.4% successful nett revenue, demonstrating its resilience in adapting to marketplace challenges.

As nan request for surgical services continues to grow, Surgery Partners Inc is poised to use from this inclination pinch an extended web of surgical accommodation crossed nan United States. The institution delivering high-quality surgical attraction successful a cost-effective and patient-centered mode presents a important opportunity for maturation successful nan outpatient room market. The coagulated financial performance, strategical focus, and expanding gross streams make it a imaginable leader successful nan outpatient surgical services market.

What do they do?

Surgery Partners Inc provides surgical services to patients crossed nan United States. The institution operates over 180 surgical facilities, including ambulatory room centers, surgical hospitals, and expert practices. It offers a scope of services, including orthopedic and spine surgery, wide surgery, and symptom guidance procedures. The institution focuses connected providing high-quality surgical attraction successful a cost-effective and patient-centered mode to amended diligent outcomes while reducing healthcare costs. Surgery Partners Inc besides partners pinch physicians and healthcare providers to present broad surgical attraction and grow entree to surgical services successful section communities.

Recent Corporate Performance:

Surgery Partners Inc Q3 2022 results showcased a dependable and affirmative firm performance. The institution gross saw a year-on-year increase of 11%, from $559 cardinal successful Q3 2021 to $620 cardinal successful Q3 2022. However, nan company's income connection shows that it has struggled pinch nett losses successful caller years, which is simply a origin for interest for investors. The company's third-quarter 2022 results showed a net nonaccomplishment of $25 million.

Despite nan challenges posed by nan ongoing pandemic, Surgery Partners Inc has demonstrated a resilient firm performance, arsenic indicated by its Q3 results. The company's financial results show its expertise to accommodate to marketplace dynamics quickly and proceed delivering value surgical attraction to its patients.

Strengths:

One of nan company's important strengths is its beardown performance, arsenic indicated successful nan third-quarter 2022 results. The company's strategical attraction connected providing high-quality surgical attraction and building a coagulated estimation among patients and healthcare providers has been a captious driver of this growth. Its extended web of outpatient room centers allows nan institution to supply value attraction to patients successful a cost-effective and patient-centered manner.

The company's caller acquisition of National Surgical Healthcare besides presents an opportunity for further description and gross growth. In addition, this caller acquisition has helped nan institution to grow its work offerings and gross streams, which whitethorn thief to mitigate immoderate of nan risks associated pinch its indebtedness load.

Although nan existent ratio of nan institution is supra 1, indicating immoderate grade of liquidity, it is not peculiarly strong. Specifically, nan existent ratio stands astatine 1.18. However, nan institution does person immoderate important semipermanent assets, including a important goodwill of $4.1 cardinal and $1.1 cardinal worthy of property, plants, and equipment. This gives nan institution a coagulated semipermanent plus position.

Weakness:

One of nan important weaknesses of Surgery Partners Inc is its precocious indebtedness levels, which tin limit nan company's financial elasticity and expertise to put successful maturation opportunities. As of September 30, 2022, Surgery Partners Inc's full debt was $3.56 billion, pinch a semipermanent indebtedness of $2.58 billion. This level of indebtedness could limit nan company's expertise to put successful maturation initiatives aliases grip immoderate financial challenges that whitethorn originate successful nan future.

However, it's worthy noting that nan institution has been taking steps to negociate its debt. For example, successful 2020, Surgery Partners Inc completed a refinancing transaction that helped nan institution trim its indebtedness and amended its liquidity.

Another interest was successful 2019; Surgery Partners Inc reported a nett nonaccomplishment of $75 million, which is simply a important alteration from nan erstwhile year's nett nonaccomplishment of $206 million. The company's nett nonaccomplishment continued to summation thereafter successful 2020, pinch a reported nett nonaccomplishment of $116 million, chiefly owed to nan COVID-19 pandemic's effect connected its business operations. In nan first 3 quarters of 2021, nan institution reported a nett nonaccomplishment of $71 million, which is simply a important betterment from nan nett nonaccomplishment of $121 cardinal successful nan aforesaid play successful nan erstwhile While nan institution has shown immoderate betterment successful reducing its nett loss, it still has not been consistently profitable.

Looking Forward:

Given that nan firm's nett income is negative, it is intolerable to worth nan institution based connected PE aggregate bases. The EV/EBITDA multiples and DCF valuation are presented successful nan charts below. The EV/EBITDA aggregate is astir 20x, adjacent to its assemblage median of 17x. Looking astatine nan equilibrium sheets and multiples of peers, DCF is simply a amended measurement to worth this company; intrinsic worth by DCF comes retired to $43, which is 20% higher than nan existent marketplace price. Based connected nan supra methods, nan mean intrinsic banal value is astir $46 compared to nan $35 nan banal is presently trading. It is somewhat undervalued astatine this moment.

My assumptions for nan DCF valuation are:

  • 3-Year Beta: 2.681

  • Cost of equity: 14.7%

  • Cost of debt: 6.6%

  • Weighted Average Cost of Capital (WACC): 9.3%

Created by nan writer utilizing information from institution filings

Self

Conclusion:

Although location are concerns that request to beryllium considered, Surgery Partners has caught my attraction for a fewer reasons. One of them is nan wide web of surgical accommodation that nan institution offers passim nan US, which has consistently provided high-quality surgical attraction astatine an affordable costs while keeping nan diligent astatine nan halfway of its attention. In addition, fixed nan increasing request for outpatient surgical services, Surgery Partners has a important opportunity to grow successful this market. However, this maturation whitethorn return time.

Additionally, nan company's EV/EBITDA multiples are attractive. Yet, contempt this, I propose a Hold connected SGRY banal owed to nan consequence of antagonistic income and nan precocious level of indebtedness connected its equilibrium sheet.

This article was written by

Sakshi Patni floor plan picture

Sakshi Patni joined Sungarden Investment Publishing arsenic an Investment Research Intern successful January 2023. She completed her undergraduate successful 2019 and worked arsenic a Research Associate for 2 years astatine Morningstar focusing connected US Private Equity Markets. Afterward, she started her Master’s successful Finance grade pinch Stevens Institute of Technology successful Fall 2021 and has a cumulative GPA of 3.96. Having cleared CFA Level 1 and pinch a keen liking successful nan section of Impact Investing, Venture Capital and Corporate Finance, she wants to want to make an effect successful this world pinch her knowledge of Finance and leveraging today's technology. Closely associated pinch writer Modern Income Investor.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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