The price of HMS Holdings Corp. shares is weighed down by uncertainty over an upcoming expansion of the government's Medicaid program and a key contract renewal and that creates a buying opportunity, Jefferies analyst David Windley says.
The analyst said in a Friday morning research note that he has raised his rating on the New York medical information company's stock to "Buy" from "Hold." He also raised his price target on the shares to $29 from $21.50.
HMS coordinates benefits and performs billing audits for government healthcare programs. It works on Medicaid, the state-federal program that covers the needy and disabled; and Medicare, the federal program that covers the elderly and disabled patients.
The health care overhaul calls for an expansion of Medicaid enrollment starting in 2014 as part of the law's push to provide coverage for millions of uninsured people. A Supreme Court ruling earlier this year will allow states to opt out of this expansion, and some state leaders have said that's what they plan to do, which could hamper growth for HMS.
But Windley said many states ultimately won't pass on a chance to lower their uninsured populations, and he expects a higher participation rate than what investors are currently factoring into the stock price.
HMS also has a contract tied to Medicare that expires in 2014, and Windley said the risk of it not being renewed has been "a considerable source of concern for investors." The contract basically involves recovering Medicare overpayments for the government.
Windley wrote that he sees little risk that HMS loses the business, in part because it has performed better than its competitors.
The company's shares closed at $22.61 on Thursday. They have fallen 39 percent since they closed at a 52-week high of $37.19 on Aug. 15.