By Dan Victor
Option Care Health stock is down 28% since we recommended it last September. Following a strong start to the year, shares of the infusion therapy services provider fell by 24% yesterday after first quarter results underwhelmed.
Despite the sharp drop, we think Option Care Health is still worth holding. The company remains profitable and generates solid cash flow in a segment of healthcare with high demand amid an aging population and increased prevalence of chronic diseases. We think the stock trading at 10x earnings offers good value and is positioned to rebound.
The Bannockburn, Ill.-based company said revenue of $1.35 billion grew just 1.3% from the prior year quarter, well below Wall Street expectations for an increase closer to 5%. Management also lowered its full year 2026 top-line guidance by $175 million to the range of $5.675 billion to $5.775 billion suggesting annual growth around 1%.
A couple of factors are at play. During the earnings conference call with investors, management described how a drop in patients seeking the Stelara therapy and biosimilars (used to treat inflammatory conditions like Crohn's disease and plaque psoriasis) was larger than anticipated. Part of the headwind was the significant number of patients that needed to go through an insurance benefit reauthorization process at the start of the year, which pushed approvals into late March. The company also noted a slower ramp-up for some rare and orphan drug programs as impacting the product mix and growth forecasts.
It looks like these are transient, nonstructural issues that should improve over the next few quarters.
Option Care Health still managed to deliver better than expected profitability margins, with some success in ongoing savings initiatives, including efforts to capture administrative efficiencies through automation and technology. First quarter adjusted earnings per share of $0.40 was approximately flat from last year, but exceeded the consensus estimate of $0.37.
A handful of Wall Street analysts are defending the stock, including Pito Chickering at Deutsche Bank who reaffirmed a buy rating while lowering his price target from $40 to $26, implying a 30% return from the recent price of $20.00. Stephen's analyst Raj Kumar is also bullish, highlighting in his earnings recap how Option Care reaffirmed its full year adjusted EPS target of $1.82 to $1.92. That represents a 8.7% annual increase at the midpoint, further suggesting that the weak start to the year might be a temporary misstep.
For now, Option Care Health management is focused on "decisive actions" to reaccelerate revenue growth. A major opportunity for the company is to expand its ambulatory infusion sites network that allows it to serve more patients with fewer clinical resources compared with its traditional home visits. The company is also increasingly using an advanced practitioner model, which involves nurse practitioners and physician assistants managing more complex patient care into areas like oncology, neurology, and rare diseases, which have more favorable economics.
Signs the company is getting back on track into the second half of the year with stronger operating momentum could be the catalyst needed for shares to rebound. The long term outlook is bright.
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May 02, 2026 01:56 ET (05:56 GMT)
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