Jefferies starts Waystar at Buy, says risk-reward is 'skewed to the upside'

Investing.com -- Jefferies initiated research coverage of Waystar Holding Corp (NASDAQ:WAY) stock on Tuesday with a Buy rating and a price target of $51.

With Waystar’s strong positioning in the payments ecosystem, Jefferies analysts believe that the consensus forecasts for the company are too conservative, particularly for fiscal year 2025, which currently projects only a 7.5% revenue growth and no margin expansion for the next several years.

“With shares trading at a ~20% discount to software peers, we believe the risk/reward is skewed to the upside at current valuation,” analysts led by Glen Santangelo said in a note.

Waystar offers a cloud-based revenue cycle management platform that integrates with existing technology and electronic health records platforms. This integration capability has driven growth as providers shift away from in-house solutions.

“We believe there's high interest in a capable platform that can integrate with a provider’s existing IT stack, which positions the company for a multi-year runway of low double-digit (LDD) growth and gradual margin expansion,” analysts continued

Currently, the key debates surrounding Waystar's stock include the sustainability of its LDD revenue growth, the timing of margin leverage in the financial model, and the company's valuation.

In this context, Jefferies sees Waystar as well-positioned to deliver consistent revenue growth, supported by strong net revenue retention rates, natural healthcare volume growth, and significant upsell opportunities.

On valuation, despite Waystar's shares increasing by more than 35% since early December and approximately 93% since its initial public offering in June, analysts consider the current levels attractive.

They note that Waystar is trading at roughly 20 times the firm's above-consensus estimates for calendar year 2025 EBITDA, compared to software peers trading at approximately 25 times.

The $51 price target is based on a 24 times multiple of projected calendar year 2025 EBITDA, assuming the discount to software peers narrows as the market begins to reflect the business more accurately.

Like Jefferies, other Wall Street analysts are also bullish on WAY stock, with 11 buy ratings, no neutral ratings, and no sell ratings.