Moody’s has upgraded its outlook for RadNet Inc. from “stable” to “positive” after the Los Angeles-based imaging giant has made a full recovery from earlier COVID-related struggles.
The investor service also highlighted RadNet’s improved financial leverage, margins and liquidity in 2021 and believes the publicly traded imaging center operator should sustain such improvements.
“RadNet was materially impacted by the coronavirus outbreak in 2020 but the company’s business volumes have largely recovered since then,” experts Kailash Chhaya and Ola Hannoun-Costa wrote March 29. “The medical imaging services business is also exposed to some social risk given that the services may be provided on an out-of-network basis and may be subject to government regulations such as the No Surprises Act of 2022,” they cautioned.
In justifying the decision, analysts highlighted RadNet’s “strong” competitive position in its primary markets, varying revenue streams through delivering multiple imaging modalities, and payer diversity. About 57% of its revenue comes from more lucrative commercial insurers, offering higher rates than Medicare and Medicaid. The company’s liquidity is also “very good,” given $40-$50 million in annual free cash flow, $134 million in cash, and $187 million available to draw from its revolving credit line.
Chhaya and Hannoun-Costa warned that RadNet is constrained by its geographic concentration in only six states, financial leverage and high fixed costs, including significant interest expenses and capital expenditures. The latter stems, in part, from the need to maintain costly diagnostic imaging equipment.
“The ratings could be downgraded if the company's operating performance and/or liquidity position weaken due to reasons including the change in the trajectory of the pandemic, labor shortage and inflation,” experts wrote.
Moody’s first downgraded RadNet’s outlook to “negative” in July 2020, citing the risk of prolonged business disruption from COVID and uncertainty about the specialty’s future. However, analysts switched their forecast to “stable” in March 2021 as patient volumes continued to rebound.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.