Stock Analysis & Ideas

Why Is Cano Health (NYSE:CANO) an Attractive Acquisition Target?

Story Highlights

Cano stock spiked on news that Humana and CVS Health are among the potential buyers of the company. Cano is an attractive acquisition target in the primary care space.

Shares of Cano Health (NYSE:CANO) leaped 32% after the Wall Street Journal reported that Humana (NYSE:HUM) and CVS Health (NYSE:CVS) are among the potential buyers of the company. CANO operates in a lucrative primary care space and has solid recurring revenues (approximately 95% of CANO’s revenue is recurring). Further, its stock is still down about 37% in one year, making it an attractive acquisition target.

What’s more? Most of CANO’s revenues come from Federal and state governments, which adds stability. Meanwhile, its revenue and adjusted EBITDA have grown at a breakneck pace since 2019 (at a CAGR of over 100%). It also owns solid strategic assets, like 143 medical centers, and has a growing member base.  

Here’s What Triggered the Potential Sale

Activist investor Third Point revealed its 6.37% stake in Cano Health in March. In a 13D filing with the SEC, Third Point stated that it has confidence in CANO’s management team and operating strategy. However, citing investors’ negative outlook on companies that went public through the SPAC route (CANO Health went public through a SPAC), it urged management to immediately engage financial and legal advisors to review strategic alternatives, focusing on the sale of the company. 

In response to Third Point’s suggestions, Jefferies analyst Brian Tanquilut stated, “We share Third Point’s view that the SPAC overhang that has caused discounts for companies that went public through that route will be difficult to fully eliminate near-term.” However, Tanquilut added, “Cano should also do well on its own.” 

The analyst sees CVS and Humana as potential strategic acquirers of the company. Both Humana and CVS are focused on expanding their presence in the primary care space through tuck-in acquisitions.

Is Cano Stock a Buy?

Cano stock is a Moderate Buy on TipRanks based on two Buy and two Hold recommendations. Meanwhile, these analysts’ average price target of $6.94, implies 16.8% downside potential. Cano stock has a positive signal from hedge fund managers, who acquired 182.8K CANO stock last quarter.

Overall, CANO stock has a Neutral Smart Score of six out of 10 on TipRanks.

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