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Bull of the Day: Cotiviti (COTV)

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Cotiviti (COTV - Free Report) is a leader in payment accuracy solutions for major healthcare payers in the U.S., along with audit and recovery for top retailers across the U.S., U.K. and Canada. The company acts as payment auditors for primarily the healthcare industry, but also focuses in retail. Cotiviti provides services to eight of the top ten U.S. healthcare payers and helps clients capture over $3 billion annually through improved payment accuracy. The recent IPO is a Zacks Rank #1 (Strong Buy) and todays Bull of the Day after an impressive EPS beat and rising estimates.

Cotiviti has a market cap of $3 billion with a Forward PE of 27. The stock has been strong since its IPO pricing back in May at $19, which it has surged over 65% since. In addition, the company also sits in a strong industry that is ranked 67 out of 265 (Top 25%) in the Zacks Industry Rank.  

The company’s recent earnings, recent estimate revisions higher and broker upgrades make the stock very tempting to buy here at post IPO highs.

Q2 Earnings

Q2 was reported on August 9th, when the company beat by 9 cents and beat on revenue. Q2 was seen at $0.37 versus the $0.29 expected, with revenue coming in above expectations at $158.3 million verse $146 million. The company also guided fiscal year 2016 above the 600 million expected, and now sees $610-615 million in revenue. In addition, adjusted EBITDA was seen almost 20% higher year over year, going from $52.6 million to $63 million.  

The stock responded to the strong Q2 earnings report, by spiking from $24 to $33 over a period of two weeks. After a one-day pullback of 15% the stock has rallied and taken out post-earnings highs. This pullback under $30 was a fantastic opportunity to get long, as the stock looks poised to go even higher along with its estimate revisions.


Since the EPS report, revisions to estimates have gone higher for both fiscal year 2016 and 2017. For 2016, estimates have ticked 42% over the last 30 days, from $1.06 to $1.17. For 2017, estimates have been revised 24% higher, from $1.21 to $1.28. The stock next reports in November where estimates have stagnated over the last 90 days. If the company sees another beat, expect investors to rush into the stock in anticipation of more revisions higher.

Broker Upgrades

In the days following the EPS report a couple brokers raised price targets for the stock. JP Morgan raised from $22 to $28, while Barclays raised from $22 to $31. The stock was trading at $24 before earnings and the price targets have already been hit, so look for future upgrades from these two.

Recently Baird Equity Research was out with another upgrade and a $39 price target. They base their target on a 15X multiple applied to the 2018 estimates. Baird’s note went onto say that the need to curb healthcare spending, combined with payment complexity should support their 10-12% growth outlook. In addition, the Cotiviti’s high margins and low capex results in strong cash flow and capital deployment optionality.

In Summary

When a company comes to market in form of an IPO, the first six months’ performance is an important indicator of  future performance. So far Cotviti has impressed investors and analysts alike. Look for the stock to continue to drift higher into the next EPS report and possibly be a future Wall Street favortie

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