With a daily gain of 4.66% and a 3-month loss of 15.2%, Surgery Partners Inc (SGRY, Financial) presents a complex picture to investors. The company's Earnings Per Share (EPS) stands at 0, raising questions about its current market valuation. Is Surgery Partners modestly undervalued? This analysis dives into the intrinsic value of Surgery Partners, providing insights into whether the stock represents a sound investment opportunity.
Company Overview
Surgery Partners Inc is a prominent player in the healthcare services industry, specializing in outpatient surgical solutions. It operates mainly through two segments: Surgical Facility Services, which is the major revenue contributor, and Ancillary Services. Currently, Surgery Partners is trading at $26.72 per share with a market cap of $3.40 billion, against a GF Value of $29.55. This discrepancy suggests that the stock might be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure calculated to determine the fair value of a stock. It incorporates historical trading multiples, an adjustment factor based on past performance and growth, and future business performance estimates. For Surgery Partners, the GF Value suggests a fair trading value of $29.55 per share, indicating that the stock is currently trading below its intrinsic value. This assessment posits that the stock might offer a higher future return given its current undervaluation.
Financial Strength and Risks
Before investing, assessing a company's financial health is crucial. Surgery Partners has a cash-to-debt ratio of 0.06, significantly lower than the industry average, reflecting a higher risk of financial distress. The company's financial strength is rated 4 out of 10, indicating potential vulnerabilities in its financial structure.
Profitability and Growth Prospects
Despite its financial challenges, Surgery Partners has maintained a fair level of profitability, with an operating margin of 15.42%, ranking better than 82.87% of its peers. However, the company has experienced a negative revenue growth rate over the past three years, which raises concerns about its long-term growth potential.
Evaluating Return on Investment
A critical measure of a company's profitability is the comparison of its return on invested capital (ROIC) and its weighted average cost of capital (WACC). Surgery Partners' ROIC of 6.65 is below its WACC of 12.21, indicating it may not be generating adequate returns relative to its costs, which could impact long-term value creation for shareholders.
Conclusion
While Surgery Partners (SGRY, Financial) appears modestly undervalued according to the GF Value, potential investors should consider the company's weak financial strength, below-average growth rates, and inadequate return on invested capital. These factors could influence the long-term investment outlook. For a deeper understanding of Surgery Partners' financial health and stock potential, visiting its 30-Year Financials is recommended.
To discover other high-quality companies that may deliver above-average returns, consider exploring the GuruFocus High Quality Low Capex Screener.
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.
