agilon health (AGL)

Healthcare services company Agilon Health (NYSE:AGL) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales fell by 4.5% year on year to $1.53 billion. On the other hand, next quarter’s revenue guidance of $1.47 billion was less impressive, coming in 0.5% below analysts’ estimates. Its GAAP loss of $0 per share was in line with analysts’ consensus estimates.

Company Overview

Transforming how doctors care for seniors by shifting financial incentives from volume to outcomes, agilon health (NYSE:AGL) provides a platform that helps primary care physicians transition to value-based care models for Medicare patients through long-term partnerships and global capitation arrangements.

The outpatient and specialty care industry delivers targeted medical services in non-hospital settings that are often cost-effective compared to inpatient alternatives. This means that they are more desired as rising healthcare costs and ways to combat them become more and more top-of-mind. Outpatient and specialty care providers boast revenue streams that are stable due to the recurring nature of treatment for chronic conditions and long-term patient relationships. However, their reliance on government reimbursement programs like Medicare means stroke-of-the-pen risk. Additionally, scaling a network of facilities can be capital-intensive with uneven return profiles amid competition from integrated healthcare systems. Looking ahead, the industry is positioned to grow as demand for outpatient services expands, driven by aging populations, a rising prevalence of chronic diseases, and a shift toward value-based care models. Tailwinds include advancements in medical technology that support more complex procedures in outpatient settings and the increasing focus on preventive care, which can be aided by data and AI. However, headwinds such as reimbursement rate cuts, labor shortages, and the financial strain of digitization may temper growth.

agilon health competes with other companies focused on value-based primary care models including Oak Street Health (acquired by CVS Health), Privia Health (NASDAQ: PRVA), VillageMD (majority-owned by Walgreens Boots Alliance), and privately-held companies like Iora Health (acquired by One Medical/Amazon) and Aledade.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $5.99 billion in revenue over the past 12 months, agilon health has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last four years, agilon health grew its sales at an incredible 45.4% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a stretched historical view may miss recent innovations or disruptive industry trends. agilon health’s annualized revenue growth of 40.5% over the last two years is below its four-year trend, but we still think the results suggest healthy demand.

agilon health also reports its number of customers, which reached 491,000 in the latest quarter. Over the last two years, agilon health’s customer base averaged 34.7% year-on-year growth. Because this number is lower than its revenue growth, we can see the average customer spent more money each year on the company’s products and services.

This quarter, agilon health’s revenue fell by 4.5% year on year to $1.53 billion but beat Wall Street’s estimates by 1.8%. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 1.9% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

agilon health’s high expenses have contributed to an average operating margin of negative 6.4% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out.

Analyzing the trend in its profitability, agilon health’s operating margin of negative 5.1% for the trailing 12 months may be around the same as five years ago, but it has decreased by 1.2 percentage points over the last two years. Still, we’re optimistic that agilon health can correct course and expand its profitability on a longer-term horizon due to its business quality.

agilon health’s operating margin was negative 1.4% this quarter.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

agilon health’s earnings losses deepened over the last four years as its EPS dropped 35.9% annually. We’ll keep a close eye on the company as diminishing earnings could imply changing secular trends and preferences.

In Q1, agilon health reported EPS at $0, up from negative $0.01 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast agilon health’s full-year EPS of negative $0.62 will reach break even.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

agilon health’s demanding reinvestments have consumed many resources over the last five years, contributing to an average free cash flow margin of negative 3.5%. This means it lit $3.52 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that agilon health’s margin expanded by 4.3 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and continued increases could help it achieve long-term cash profitability.

agilon health burned through $35.84 million of cash in Q1, equivalent to a negative 2.3% margin. The company’s cash burn was similar to its $50.92 million of lost cash in the same quarter last year.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

agilon health is a well-capitalized company with $367.1 million of cash and $34.92 million of debt on its balance sheet. This $332.2 million net cash position is 19.5% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how agilon health beat analysts’ revenue and EBITDA expectations this quarter. We were also glad its full-year revenue and EBITDA guidance exceeded Wall Street’s estimates. On the other hand, its new customer additions fell short. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock remained flat at $4.45 immediately following the results.

Updated: May 16, 2025 at 11:55 PM EDT

Are you wondering whether to buy agilon health or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

agilon health is a fine business. To kick things off, its revenue growth was exceptional over the last four years. And while its declining EPS over the last four years makes it a less attractive asset to the public markets, its customer growth has been marvelous. On top of that, its rising cash profitability gives it more optionality.

agilon health’s forward price-to-sales ratio is 0.2x. Looking at the healthcare landscape right now, agilon health trades at a pretty interesting price. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $4.25 on the company (compared to the current share price of $2.49), implying they see 70.9% upside in buying agilon health in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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