2023-12-08 14:09:49
Bank of America downgraded its recommendation for Rede D’Or from ‘buy’ to ‘neutral’, arguing that it expects lower growth over the next three years and that the stock trades at a high multiple.
BofA’s estimate is that Rede D’Or will grow “only” 12% per year over the next three years, already considering the plan to open new units and expand others.
“Historically, Rede D’Or has purchased premium assets in new regions to boost its growth. It would improve those assets and then expand further into the region through M&A and brownfields,” wrote analyst Fred Mendes. “But we think the biggest premium assets have already been acquired, which will limit the company’s expansion.”
The analyst also notes that Rede D’Or’s dependence on Bradesco, SulAmerica and Amil — and vice versa — has always been a theme in the sector, as the three operators account for 20% of the market.
“However, following the acquisition of SulAmérica, there are initial signs of a more challenging scenario for the accreditation of Bradesco and Amil assets,” said Fred.
For him, Rede D’Or’s growth should be impacted in either of two scenarios: if SulAmérica does not have large share gains, and Bradesco and Amil reduce their dependence on Rede D’Or; or if SulAmérica experiences large share gains, prompting even greater retaliation from competitors.
“In the long term, we see Rede D’Or as the winner (given its above-average execution and scale), but at least in the next 3 to 5 years the competition should increase.”
BofA sees Rede D’Or trading at 22x its estimated profit for next year, a 50% premium to the healthcare sector average.
According to Fred, Rede D’Or traded in the past at 30-40x profit largely due to its potential to grow 25% to 35% per year. “However, given that we anticipate lower growth ahead, we expect a de-rating of the stock.”
The bank sees the stock trading today at 22x next year’s profit, with Rede D’Or worth R$59 billion on B3.
The stock falls 1% today following the downgrade.
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