BMO Capital on Thursday raised its 12-month price target for Healthcare Services Group (NASDAQ:HCSG) to $22.00 from $20.00, while keeping the stock at a Market Perform designation.
The upgrade in target reflects what BMO described as strong momentum in HCSG's operations following a fourth-quarter performance in which adjusted EBITDA outpaced consensus by 22%. That outperformance was attributed to stronger-than-anticipated gross margins across both of the company’s business segments, the research note said. BMO also described revenue as being in line with forecasts when discussing the quarter.
Separately, the company’s reported fourth-quarter results for fiscal 2025 included an earnings per share of $0.44, twice the analyst consensus of $0.22. Revenue for the quarter totaled $466.7 million, a figure that fell slightly short of the $467.23 million forecast. The combination of an EPS surprise alongside a modest revenue miss suggests operational efficiency improvements while top-line comparisons were effectively flat to expectations.
BMO highlighted HCSG’s forward guidance as another key input to its revised valuation. The firm noted that the company introduced a mid-single-digit revenue growth outlook for 2026, building on a 7% growth expectation for 2025. BMO contrasted this with the roughly flat revenue trend Healthcare Services Group experienced over the prior five-year period, saying the new guidance represents a notable step-up.
Other elements cited by the analyst team include the company’s recontracting initiative, which BMO said is improving earnings consistency and cash collections. The firm also drew attention to the company’s expansion into the Campuses end-market. That segment now contributes more than $100 million in revenue, which BMO estimated to be in excess of 5.4% of total revenue, and is expected by the analyst to be increasingly accretive to future growth.
Earnings snapshot
- Reported EPS: $0.44 (consensus $0.22)
- Quarterly revenue: $466.7 million (consensus $467.23 million)
- Adjusted EBITDA: 22% above consensus, driven by better gross margins
Analyst stance
BMO retained a Market Perform rating while raising its target price by $2. The firm’s commentary emphasized margin improvement, recontracting benefits, and a shift to positive revenue growth expectations for 2025 and 2026 as factors supporting the higher target.
Context and limitations
The company’s stronger-than-expected EPS and improved margins were cited as positive developments, while revenue results presented mixed signals: BMO described revenue as in line with forecasts, though the company’s reported top-line came in slightly below analyst projections.
Key points
- BMO raised its price target on HCSG to $22.00 and kept a Market Perform rating.
- Adjusted EBITDA beat consensus by 22%, driven by stronger gross margins across segments.
- Company set multi-year revenue targets: 7% growth expected in 2025 and mid-single-digit growth for 2026.
Risks and uncertainties
- Top-line execution risk: quarterly revenue came in slightly below consensus at $466.7 million versus $467.23 million forecast.
- Reliance on recontracting: improvements in earnings consistency and cash collections are tied to the recontracting initiative, the outcome of which remains an execution risk.
- Growth concentration: while the Campuses end-market contribution is growing, the segment represents a modest portion of revenue today and its future accretion to growth depends on continued expansion and execution.