Guggenheim upgrades Accolade to Buy after hosting management at investor meetings

By Michael Elkins

Guggenheim upgraded Accolade Inc (NASDAQ:) to a Buy rating (from Neutral) and set a price target of $16.00 on the stock after hosting company management for a series of investor meetings.

Analysts wrote in a note, “We began warming up to the name after seeing the results of our benefits management survey that highlighted Advocacy/Navigator benefits as an increasing area of focus. Since then, the company has had a strong CY22 selling season, demonstrated solid gross revenue retention, and indicated a faster than expected path to cash break even. Additionally, we hosted ACCD management for a series of investor meetings and came away with reinforced confidence in our upgrade. With the improved growth outlook and profitability, we think that investors are likely to reward the company with a higher multiple.”

Following a benefits management survey, Guggenheim believes that the market is getting more interested in advocacy/navigation solutions and consolidating vendors. The survey conducted in January showed that 61% of the respondents indicated offering these types of solutions in their organizations, or in their clients’ organizations. This number is expected to rise to 79% in 3 years, based on the survey. A more recent survey held in February showed 52% of respondents plan to add or enhance their navigation solutions.

Concerns were raised after the company announced that Comcast (NASDAQ:), its largest customer, would be leaving at the end of CY22. However, since the announcement, the company has not reported any other material losses. Furthermore, as of F3Q23, the company had more than 600 customers with no customer representing more than 10% of revenue. Guggenheim believes that the company has a diversified and stable customer base off which to grow.

ACCD issued a press release on Feb 28th with its updated expectations to provide meaningful improvement to EBITDA guidance for FY24 when ACCD reports its F4Q23. Management also reiterated its revenue guidance of ~$410M for FY24, which would demonstrate more efficient growth.

Shares of ACCD are up 8.70% in mid-day trading on Thursday.