Morgan Stanley Lifts Accolade’s Target Price to $60, Reiterates Overweight Rating

Morgan Stanley raised their stock price forecast on Accolade to $60 from $57, reiterating an “Overweight” rating on the health technology company and said the upped forecasts reflect the combination of higher 4Q preliminary results and greater confidence in the sustainability of the airline client base recovery.

“Our FY2021 revenue estimate increases to $168.5M, from $164.6M prior, in line with the previewed FY2021 revenue range of $168M-$169M. Our 2022 revenue estimate increases to $257.7M from $202.3M implying 53% growth y/y and is in the upper half of consensus revenue estimates of $252M-$259M. Our 2023 revenue estimate increases to $339M from $290.6M, reflecting the higher FY2022 base and implying 31% growth y/y versus long-term targets of 25%,” said Ricky Goldwasser, equity analyst at Morgan Stanley.

“Additional M&A provides room for upside. The private offering of $250M of 2026 convertible notes replenishes Accolade’s balance sheet following the completion of the 2nd.MD acquisition in late February. The notes include an interest rate of 0.50% per year with an initial conversion price of $50.48/share of Accolade common stock. We estimate the additional cash raised provides Accolade with the flexibility to execute on acquisitions with $25M-$50M of revenue (assuming 5-10x EV/Revenue and compared to 2nd.MD revenues of $35M in CY20), which could potentially add 10%-20% of revenue growth.”

Accolade’s shares, which surged over 10% since the company’s IPO in early July, traded about 1% higher at $47.32 on Monday.

Eight analysts who offered stock ratings for Accolade in the last three months forecast the average price in 12 months at $58.88 with a high forecast of $65.00 and a low forecast of $54.00.

The average price target represents a 23.83% increase from the last price of $47.55. Of those eight equity analysts, seven rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Other equity analysts also recently updated their stock outlook. Accolade had its price objective boosted by Canaccord Genuity to $62 from $59. Canaccord Genuity currently has a buy rating on the stock. Credit Suisse Group upgraded to an outperform rating from a neutral and raised their price target to $60 from $45.

Moreover, SVB Leerink lifted their target price to $56 from $53 and gave the company a market perform rating. Piper Sandler lifted their target price to $60 from $57 and gave the company an overweight rating.

“The underpenetrated $13 billion+ ASO market supports healthy growth runway. We estimate that adding ~2 Strategic clients per year with the Accolade Total Health and Benefits service would support a 20%-30% topline growth profile for the next 3 years. Current penetration is<1%,” Morgan Stanley’s Goldwasser added.

“Lower-touch service offerings help diversify the client base and allow for a land-and-expand growth opportunity. Increasing engagement, improving member outcomes, and driving down costs all lead to a virtuous cycle that drives organic margin expansion. The subscription model offers high visibility into future revenue streams.”

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