Why Phreesia Stock Got Clocked Today
Key Points
In his view, it's only a hold now.
The pundit also reduced his price target by nearly half.
Healthcare tech stock Phreesia (NYSE: PHR) could have used a pick-me-up on Wednesday. In a trading session that ended in positive territory, with the bellwether S&P 500 index gaining more than 1%, Phreesia's equity lost 3.5% of its value. Much of this was directly due to an analyst's recommendation downgrade.
Docked with a downgrade
The responsible party was Stan Berenshteyn of "Big Four" U.S. bank Wells Fargo. Early that morning, he changed his rating on Phreesia to equal weight (hold, in other words) from his preceding overweight (buy). Accompanying that was a significant price target modification, with Berenshteyn lowering his to $9 per share from $15.
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According to reports, the analyst made his move following channel checks on the healthcare tech company's offerings. He wrote that these indicated mounting competition, leading him to reduce his estimates for all-important subscription revenue.
Berenshteyn added that his research indicated patient intake software is more replaceable -- and thus subject to competing solutions -- than workflow software. This, in his view, makes Phreesia vulnerable.
Is the stock now underrated?
Another negative factor pointed out by the Wells Fargo prognosticator is the general profile of Phreesia's clients. He wrote that the company's strength is private practitioners, a segment being increasingly targeted by smaller developers, among other rivals.
While Berenshteyn makes some solid points in his update, I personally wouldn't be ready to throw in the towel on Phreesia.
Despite a recent cut to its annual revenue guidance that pushed the stock to historic lows, the company is becoming increasingly well-established in its business, and clients in the healthcare tech space often stick with the same vendor (thus avoiding disruptive shifts to new ones). I'm more bullish than the analyst; to me, its stock still looks like a buy.
Wells Fargo is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.