Home Health—Proposed Rule Reflects 2.4% Update, a Positive Following Several Years of Difficult Reimbursement

Research evidence excerpt

Home Health—Proposed Rule Reflects 2.4% Update, a Positive Following Several Years of Difficult Reimbursement

Home Health—Proposed Rule Reflects 2.4% Update, a Positive Following Several Years of Difficult Reimbursement Equity Research

Investment Thesis, Valuation and Risks

BrightSpring Health Services, Inc. (BTSG)

Investment Thesis

We rate BTSG Overweight. We see BTSG as providing attractive organic growth and exposure to desirable end markets at a reasonable

valuation. Growth in specialty pharmacy is likely to remain robust from a strong industry backdrop, share gains, and generic launches.

Following AMED/LHC asset acquisitions and the divestiture of Community Living, we see BTSG's portfolio as better focused on higher-

growth businesses and now with the capital flexibility to capitalize on attractive M&A.

Target Price Valuation for BTSG

• Our $61 PT is based on 14.5x our NTM +1 adjusted EBITDA estimate pro forma M&A and 6/30/2027 balance sheet.

• BTSG has direct comparables for only a minority of EBITDA.

• Multiple expansion could be warranted over time, as BTSG gains a track record in the public market.

Risks to Our Price Target and Rating for BTSG

• Business complexity relatively high, usefulness of disclosures somewhat limited.

• Exposure to government payers relatively high.

• Post-IPO leverage remains high and could limit financial flexibility.

• Ownership stake of pre-IPO investors will remain significant and future share sales could be a near- / intermediate-term overhang.

The Pennant Group, Inc. (PNTG)

Investment Thesis. We rate The Pennant Group (PNTG) Overweight. PNTG is a provider of Home Health services, Hospice services, and

Senior Living. PNTG utilizes a unique operating model that gives significant responsibility and flexibility to local leaders.