OPCH: At-Home Infusion Demand Will Drive Shares Toward a 37% Upside

Key Takeaways

• Expansion in high-growth infusion therapies and payer partnerships is broadening patient reach, supporting sustained revenue growth and enhanced pricing power.
  
• Investments in technology, clinical efficiency, and strategic capital deployment are driving margin improvements, new revenue streams, and long-term earnings expansion.
  
• Shifting therapy mix, reimbursement risks, and increasing competition threaten margin stability and future revenue growth despite recent gains from competitor exits.

Catalysts

Offers home and alternate site infusion services in the United States.

• Growth in both acute and chronic infusion therapies is outpacing the market, driven by demographic shifts (aging population and higher prevalence of chronic/complex conditions), which is expanding Option Care Health's addressable market and positioning the company for sustained revenue growth.
  
• Deepening partnerships with national payers and pharmaceutical manufacturers-supported by system-wide shifts to lower-cost, value-based care and payers' focus on medical loss ratios-are enhancing contract wins and broadening patient access, supporting revenue growth and pricing power.
  
• Continued expansion of the company's national suite footprint and advanced practitioner model is improving nurse productivity and enabling the treatment of higher acuity, complex, and new therapeutic cohorts (including oncology and Alzheimer's), driving both margin improvements and new revenue streams.
  
• Investments in technology (AI, analytics, digital infrastructure) and clinical resource efficiency projects are supporting increased operating leverage and process automation, which is improving net margins and cash flow generation.
  
• Strategic capital deployment through share repurchases, targeted M&A, and internal investments positions Option Care Health to further accelerate top-line growth and diversify earnings, driving long-term adjusted EPS and earnings expansion.

Option Care Health Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Option Care Health's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.9% today to 4.4% in 3 years time.
• Analysts expect earnings to reach $306.2 million (and earnings per share of $1.86) by about September 2028, up from $211.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, down from 22.5x today. This future PE is greater than the current PE for the US Healthcare industry at 21.0x.
• Analysts expect the number of shares outstanding to decline by 4.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Option Care Health Future Earnings Per Share Growth

Risks

• Shifts in therapy mix toward lower-margin limited distribution and rare/orphan drugs, while supportive of gross profit dollars, are compressing gross margin rates and could pressure net margins if the mix continues to trend in this direction.
  
• Dependency on strong payer and pharma relationships, combined with ongoing payer consolidation and attempts to reduce healthcare costs, creates risk of future contract renegotiations or reimbursement rate squeezes, which would threaten revenue and earnings growth.
  
• Large-scale competitors exiting the market have driven recent acute segment growth, but as these competitor exits become fully annualized and market share gains plateau, organic growth rates may decelerate, potentially impacting top-line revenue expansion.
  
• The company faces exposure to reimbursement policy changes (e.g., tariffs, Most Favored Nation pricing, site-of-care initiatives), which, while currently not material for 2025, could unpredictably reduce reimbursement or limit profitability in future years, affecting both revenue and net earnings.
  
• Growth in biosimilars, DIY therapies, and alternative care models could accelerate commoditization of infusion services and increase competition, thereby reducing pricing power and pressuring both revenues and margins over the long term.

Valuation

• The analysts have a consensus price target of $38.778 for Option Care Health based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $41.0, and the most bearish reporting a price target of just $34.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.9 billion, earnings will come to $306.2 million, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 6.8%.
• Given the current share price of $29.25, the analyst price target of $38.78 is 24.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.