On Thursday, Raymond James has raised its rating on GoodRx Holdings Inc. (NASDAQ: GDRX) stock from Market Perform to Outperform, setting a price target of $10.00.
The decision comes after the company's inaugural investor day, which left analysts feeling increasingly positive about the future of GoodRx. The firm cites the company's accelerating revenue, improved margins, and a more concentrated business strategy as key factors in the upgrade.
The new price target is based on 11.7 times the projected 2026 EBITDA. Raymond James notes that GoodRx's valuation is compelling at 8.6 times 2026 EBITDA, which has seen a slight increase from 7.5 times at its lowest point in November 2023.
The upgrade reflects a change in sentiment from the previous skepticism over the past two years, acknowledging the impact of the new management team's efforts to refocus the business.
GoodRx's recent contract with Kroger (NYSE:KR), which had previously removed GoodRx from its network, is seen as a positive sign of the company's turnaround. While the deal with Kroger might not significantly impact financials, it is indicative of the improved relations with the retail network under the new management.
The analyst also highlights the potential within GoodRx's pharma manufacturer solutions business, estimating a growth opportunity of 20-30%. There are additional upside opportunities from GLP-1 treatments, specialty drugs, and more personalized branded discount programs.
The projected free cash flow of approximately $320 million over the next three years, which represents 11% of the current market cap, further supports the positive outlook.
Finally, Raymond James suggests that the guidance provided for 2024 appears conservative. The implied EBITDA for the second half of 2024 is projected to be roughly the same as the second quarter, indicating potential for upward revisions.
InvestingPro Insights
As GoodRx Holdings Inc. (NASDAQ: GDRX) garners a favorable rating from Raymond James, real-time data and InvestingPro Tips offer additional insights into the company's financial health and market performance. With a market capitalization of $2.73 billion, GoodRx stands out with a striking gross profit margin of 92.34% over the last twelve months as of Q1 2024, demonstrating the company's efficiency in managing its cost of goods sold relative to its revenue, which was $764.16 million. The company's revenue growth was modest at 2.27% during the same period, but it's important to note a more robust quarterly revenue growth of 7.55% in Q1 2024, suggesting a positive trend.
An InvestingPro Tip highlights that management has been actively buying back shares, which is often a sign of confidence in the company's future prospects. Additionally, GoodRx is expected to see net income growth this year, aligning with the optimistic outlook from analysts. For readers interested in deeper analysis, there are 11 additional InvestingPro Tips available, which can be explored further at https://www.investing.com/pro/GDRX. To enhance your investment research, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Despite not paying dividends, GoodRx's shareholder yield is considered high, which may be attractive to investors seeking returns through other means, such as share price appreciation or buybacks. The company's liquid assets also exceed its short-term obligations, indicating a strong liquidity position. However, it's worth noting that GoodRx operates with a moderate level of debt and has not been profitable over the last twelve months. Investors may want to weigh these factors alongside the positive sentiment expressed by Raymond James.
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