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Cotiviti Holdings, Inc.: Initiation of Research Coverage

Monday, June 20, 2016

William Blair & Company initiated research coverage of Cotiviti Holdings, Inc. (COTV $18.68), a leading provider of payment accuracy and related solutions for health insurers and retailers.

Analyst Ryan Daniels estimated that the company would generate adjusted EPS of $1.19 in 2016 and $1.26 in 2017.

“We believe Cotiviti partners with 13 of the 15 largest private health plans in the United States, working with plans that in total cover nearly two-thirds of all private plan members in the country,” Daniels said. “Its top 10 clients have been Cotiviti partners for more than a decade on average, and the company maintains outstanding client retention—a testament to the value created for these plans, in our view. The company is unique in that it offers a robust set of prospective and retrospective audit solutions, enabling health plans to consolidate business with a single vendor. While only a modest portion of sales, the company’s Medicare Recover Audit Contractor (RAC) performance has been the best in the industry, with the strongest cumulative collection rate, highest improper payment identification rates, and highest cumulative accuracy scores in the program.”

He added, “Given its contingency-based revenue model, Cotiviti should experience strong organic growth as U.S. healthcare spending continues to rise; moreover, given exceptional retention rates, the company has a solid sales base from which to expand each year. Combined with ample cross-selling opportunities (only 10 of 41 clients have both retrospective and prospective audit solutions) and the ability to add novel lines within existing accounts (e.g., Medicare Advantage offerings and novel markets), we estimate its organic growth opportunity in the existing client base is nearly $3.5 billion annually. Combined with new client additions and potential tuck-in M&A opportunities, we view Cotiviti’s ability to sustain low-double-digit sales growth as highly likely.”

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