Surgery Partners Inc (SGRY, Financial) has been making headlines with a daily gain of 13.99%, despite a 3-month loss of -24.1%. The company's Loss Per Share stands at 0.56. This leads us to the question: is the stock Fairly Valued? This article provides an in-depth analysis of the company's valuation, financial strength, profitability, and growth. We encourage readers to delve into the following analysis to make informed investment decisions.
Company Overview
Surgery Partners Inc operates as one of the few remaining independent ambulatory surgery center operators in the U.S. with national scale. The company operates surgical facilities in approximately 30 states in partnership with physician groups and larger local healthcare systems. The majority of the firm's revenue is driven by surgical procedures, but the company also operates a clinical lab, urgent care facilities, and a handful of physician practices to provide additional healthcare services within the communities it serves. It operates in two segments: Surgical Facility Services and Ancillary Services, with the former accounting for the majority of revenue.
With a share price of $28.28, Surgery Partners (SGRY, Financial) has a market cap of $3.60 billion. The GF Value, a measure of intrinsic value, stands at $27.5, suggesting that the stock is fairly valued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow), a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $28.28 per share, Surgery Partners is believed to be fairly valued. Therefore, the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Surgery Partners has a cash-to-debt ratio of 0.06, which is worse than 88.07% of 654 companies in the Healthcare Providers & Services industry. GuruFocus ranks the overall financial strength of Surgery Partners at 4 out of 10, which indicates that the financial strength of Surgery Partners is poor.
Profitability and Growth
It is less risky to invest in profitable companies, especially those with consistent profitability over the long term. A company with high profit margins is usually a safer investment than those with low profit margins. Surgery Partners has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $2.70 billion and Loss Per Share of $0.56. Its operating margin is 14.26%, which ranks better than 80.49% of 656 companies in the Healthcare Providers & Services industry. Overall, the profitability of Surgery Partners is ranked 4 out of 10, which indicates poor profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Surgery Partners is -10%, which ranks worse than 88.63% of 563 companies in the Healthcare Providers & Services industry. The 3-year average EBITDA growth rate is -8%, which ranks worse than 76.76% of 512 companies in the Healthcare Providers & Services industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Surgery Partners's ROIC was 5.77, while its WACC came in at 11.41.
Conclusion
Overall, Surgery Partners (SGRY, Financial) stock is believed to be fairly valued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 76.76% of 512 companies in the Healthcare Providers & Services industry. To learn more about Surgery Partners stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
