BTIG says this niche stock 'delivering the joy of parenthood' set for a 30% gain

Published Mon, May 22 202312:18 PM EDTUpdated Mon, May 22 20232:26 PM EDT

As more Americans try to grow their families through fertility treatments, Progyny will be a big beneficiary, according to BTIG. The Wall Street firm initiated coverage of the stock with a buy rating on Monday, noting that the fertility benefits management company is "delivering the joy of parenthood" with its superior outcomes. Its $50 price target implies 34.7% upside from Friday's close. Progyny partners with companies to provide fertility and family building benefits for employees. It has a network of fertility specialists, a pharmacy and what it calls Smart Cycle, which bundles individual services, tests and treatments. The company, which had a market value of $1.3 billion when it went public in 2019, now has a market cap of $3.7 billion. "The fertility space is fast growing , as the prevalence of infertility is increasing and more patients are turning to additional support for what can be a financially constraining and emotionally taxing process," analyst David Larsen wrote in a note to clients. PGNY mountain 2019-10-25 Progyny's performance since its Oct. 2019 IPO Progyny has a total addressable market of $8 billion, which is calculated using Centers for Disease Control and Prevention data, Larsen said. However, the figure doesn't account for those not actively seeking treatment for infertility. It could be twice that amount if there were increased coverage and accessibility, BTIG estimated. That lucrative total addressable market is largely unpenetrated, Larsen said. "We also like PGNY's high revenue growth, strong margin expansion, and near perfect retention rates of existing customers. The company is led by a management team with extensive experience in the healthcare research and payer space," he added. Not only is the prevalence of infertility increasing, but employees are pushing for their employers to provide or expand fertility benefits, Larsen noted. Traditional insurance coverage can be limited, yet the cost of treatment is expensive. The average price tag for an in vitro fertilization cycle is $12,400, according to the American Society for Reproductive Medicine . Medications can add another $3,500 to $7,000 to the bill. "With a tight labor market, companies are more consistently seeking to work with Progyny in order to be able to attract and retain high-quality talent," Larsen said. "PGNY also tends to result in lower maternity and healthcare costs for employers because PGNY's narrow network of specialists, and patient care advocates, know how to safely navigate through ART (Assisted Reproductive Technology) cycles, typically preventing multiple births that can result in high-cost complications and expensive NICU (neonatal intensive care unit) stays." The company has primarily relied on organic growth, but there are also untapped opportunities for strategic expansion and potential acquisitions, he said. "PGNY may continue to enhance its fertility offerings. PGNY can expend resources to acquire companies with capabilities that enhance or integrate well with their own. There are smaller fast-growing companies entering the space that serve more niche areas relating to fertility," Larsen wrote. — CNBC's Michael Bloom contributed reporting. Correction: The average price tag for an in vitro fertilization cycle is $12,400, according to the American Society for Reproductive Medicine. An earlier version misstated the name of the organization.