Cano Health’s (NYSE: CANO) shares plunged in October 2022 when CVS Health decided against acquiring the company. Cano Health, Inc. (NYSE: CANO), which debuted on the public market through a Special Purpose Acquisition Company (SPAC) transaction two years prior, ranks among the largest independent primary care physician networks in the United States. On Friday, shares of CANO Health were trading at a mere $1.09 with a 52-week high of $9.75.
Is this a once-in-a-lifetime opportunity to buy the dip?
CVS Health recently agreed to acquire Oak Street Health, a value-based primary care company focused on older adults, for $39 per share in an all-cash transaction worth approximately $10.6 billion. Oak Street Health operates 169 medical centers across 21 states and employs around 600 primary care providers. This acquisition will combine Oak Street Health’s innovative care model and technology platform with CVS Health’s extensive reach, reducing care costs and improving outcomes, particularly for underserved communities. Oak Street Health CEO Mike Pykosz will continue to lead the company as part of CVS Health’s Health Care Delivery organization.
Compared to Oak Street Health, Cano Health operates 151 primary care centers focused on senior care, mainly in Florida. CVS’s recent acquisition of Oak Street Health for over $10 billion could potentially boost Cano Health’s value. Although both Cano and Oak Street are unprofitable, primary care has become an attractive investment area, with companies like Amazon entering the market. Cano Health’s current valuation of $830 million suggests there could be more upside for the stock, but multiple factors will influence any potential acquisition price.
In February, Cano Health closed a $150 million senior secured term loan, maturing on November 23, 2027. Lenders for the loan include Diameter Capital Partners and Rubicon Founders. The loan carries a 14% interest rate for the first two years and 13% thereafter, payable quarterly. Cano Health also issued warrants for up to 29.5 million shares of its Class A common stock to the lenders. The company plans to use the funds for general corporate purposes, including repaying its existing revolving credit facility and covering transaction fees and expenses. Cano Health aims to optimize its existing capacity, enhance liquidity, improve margins, and maximize long-term shareholder value.
Recent Financial Results:
Cano Health announced financial results for the fourth quarter and full year ended December 31, 2022:
Fourth Quarter 2022 Financial Results:
Total membership: 309,590, including 179,536 Medicare capitated members
Total revenue: $680.4 million
Net loss: $(301.7) million
Adjusted EBITDA: $35.7 million
Full Year 2022 Financial Results:
Total revenue: $2,738.9 million
Net loss: $(428.4) million
Adjusted EBITDA: $152.5 million
Cano Health has established strong relationships with numerous health plans and is an essential component of their provider network. The company serves more than 64,000 Humana Medicare Advantage members in Florida, its largest Medicare Advantage market. Humana has been granted a right of first refusal on any significant transaction involving Cano Health.
Considering the high demand for acquisitions in the primary care sector and the limited number of sellers, along with management’s willingness to explore strategic options for shareholder value, it is probable that CANO will soon be acquired at a significant premium to its current share price. Humana, which is expanding its investments in primary care centers and has an existing partnership with CANO, is a likely acquirer.
Other top health care related stocks to keep an eye out include Johnson & Johnson (NYSE:JNJ), Pfizer Inc. (NYSE:PFE), UnitedHealth Group Incorporated (NYSE:UNH), Novartis AG (NYSE:NVS), Merck & Co., Inc. (NYSE:MRK), Abbott Laboratories (NYSE:ABT), Medtronic plc (NYSE:MDT), AstraZeneca PLC (NASDAQ:AZN), Bristol-Myers Squibb (NYSE:BMY), Eli Lilly and Company (NYSE:LLY), CVS Health Corporation (NYSE:CVS), Humana Inc. (NYSE:HUM).
Disclaimer: I/We have a beneficial long position in the shares of CANO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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