Earlier this month, this healthcare tech company began selling its shares to the public. In addition to Canaccord, coverage of the shares was recently initiated at:
- JP Morgan, ‘Overweight’
- Piper Sandler, ‘Overweight’
- Credit Suisse, ‘Outperform’
- Truist Securities, ‘Buy’
- William Blair, ‘Outperform’
Privia Health Group, Inc. (PRVA)
From Canaccord Genuity Research
We initiate coverage of Privia with a BUY and $47 PT. Privia is a leader in primary care and physician practice management. Privia’s offering includes a comprehensive technology platform and a strong physician governance structure that helps drive physician practice optimization.
Unlike many other primary care companies, Privia has an asset-light operating model with minimal start-up costs associated with its growth strategy. The company is already profitable given physicians added to the platform typically have a ramped patient panel. Privia is not limited to any one specialty, payer, or reimbursement model. Currently, ~90% of Privia’s business is fee-for-service, and while Privia helps optimize FFS, the company is also focused on shifting to value. This attractive business model is expected to deliver impressive long-term growth (20%+ top-line) and margin (30-35% adj-EBITDA) targets.
Key investment highlights:
- Privia helps providers optimize their physician practice. Privia offers a technology platform coupled with a physician governance structure that helps manage all aspects of the physician practice, including clinical, financial, and operational workflows. The technology platform effectively streamlines the workflow of a physician practice, including patient access, pre-visit processes, clinical decision support, point-of-care processes, post-visit care, and in-between care interactions with patients. The physician governance structure provides expert consulting and guidance to medical groups to drive physician practice optimization in areas such as payer contracting, revenue cycle management, clinical programming, and more.
- A primary care-centric model with a large TAM nearing $1.9 trillion. Privia’s physician-enablement model is designed to be primary care-centric but can be implemented by a wide range of physician specialties for all patient acuity levels. Privia partners with both independent medical groups and hospital affiliated or owned medical groups and can be used across all payers and reimbursement models. Because Privia’s model is broadly designed for the healthcare market, the company has a sizeable TAM it estimates at roughly $1.9 trillion.
- Privia currently operates in only six US states and DC, with massive expansion opportunity. In the regions where Privia currently operates, the company has a market share of ~3.5%. Not only can the company grow its share in these regions, but it intends on expanding across the US. With operations in just six US states plus DC today, there is massive room for growth.
- An asset-light operating model. Privia neither owns physician practices nor employs the majority of its providers. Privia contracts with practices through owned management services organizations (MSOs) and accountable care organizations (ACOs). Under this model, Privia has minimal upfront costs to enter into new markets and expand with new provider groups in a profitable manner. This allows physicians to remain owners and share in the upside of the transition to value-based care.
- Long-term top-line growth target of 20%+ and adjusted EBITDA margin target of 30-35%. Privia has massive growth opportunity; management believes it can achieve long-term practice collections growth of 20%+. Privia partners with existing provider groups that have a successful and profitable track record; thus, Privia generated an adjusted EBITDA margin of 16% in 2020. The company’s long-term adjusted EBITDA margin target is 30-35%. We project adjusted EBITDA margin of 16%, 21% and 25% in 2021, 2022, and 2023, respectively.
We are initiating coverage with a $47 price target, which is based on 3.4x our 2022 adjusted EBITDA estimate. This implies a ~20-25% discount to a peer group of healthcare services companies that currently trades at 4.3x.
Richard Close and Brian Hoffman, Canaccord Genuity Research, canaccordgenuity.com, May 24, 2021