Story updated at 9:50 a.m. to reflect market activity.
Catamaran stock gained 1.1% to $39.89 in morning trading.
The firm set a price target of $50 on the software company, saying the upgrade is a valuation call.
"We have long been concerned that the shares' valuation embedded an aggressive growth profile and the multiple would compress toward the mature multiple afforded mature PBMs," analyst Bret Jones wrote. "However, the recent volatility accelerated the compression much quicker than we anticipated. We believe the market has overshot, primarily because of stale service concerns and skittishness over 1Q14. While service issues exist for all PBMs, our PBM consultants have not noted an uptick in service issues related to contract starts. We are lowering our 1Q EPS estimate, but are still slightly above consensus and do not view consensus at risk. We are establishing a price target of $50."
Separately, TheStreet Ratings team rates CATAMARAN CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate CATAMARAN CORP (CTRX) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 10.4%. Since the same quarter one year prior, revenues rose by 36.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- CTRX's debt-to-equity ratio is very low at 0.26 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.14, which illustrates the ability to avoid short-term cash problems.
- CATAMARAN CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CATAMARAN CORP increased its bottom line by earning $1.27 versus $0.73 in the prior year. This year, the market expects an improvement in earnings ($2.15 versus $1.27).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Providers & Services industry. The net income increased by 75.0% when compared to the same quarter one year prior, rising from $42.53 million to $74.41 million.
- Net operating cash flow has increased to $139.57 million or 36.53% when compared to the same quarter last year. In addition, CATAMARAN CORP has also vastly surpassed the industry average cash flow growth rate of -26.85%.
- You can view the full analysis from the report here: CTRX Ratings Report