BofA Turns Pessimistic on Afya Limited (AFYA)

Afya Limited (NASDAQ:AFYA) is among the most promising education stocks according to hedge funds. On February 24, BofA reduced the price target on Afya Limited (NASDAQ:AFYA) to $17 from $22, while downgrading it from Buy to Neutral. According to the firm, increased investments in non-core businesses will put pressure on shareholder returns in the short-term. The analyst now expects the company’s medical practice solutions to scale up more gradually than previously thought.

The firm projects a free cash flow-to-equity yield of about 10% for this year, down from the earlier forecast of 13%. While undergraduate programs continue to keep generating strong cash flow, thanks to solid profit margins and revenue, the medical practice solutions segment is witnessing a lagged ramp-up. This division represents 5% of Afya Limited (NASDAQ:AFYA)’s revenue.

Earlier, on February 13, Morgan Stanley said that investments required to grow other businesses will possibly weigh on margins. Afya Limited (NASDAQ:AFYA) also faces additional structural pressures, including established medical undergraduate seats, which the firm believes will result in slower volume growth. That said, the firm downgraded the company to Underweight from Equalweight and cut the price target to $16, down from $17.50.

Afya Limited (NASDAQ:AFYA) is a Brazilian medical education group operating in three segments: Undergrad, Continuing Education, and Digital Services. Incorporated in 1999, the company offers educational products and services, digital health services, printed and digital content, an online medical education platform, and practical medical training services.

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