Citi lifted its Rede D’Or target price to R$52, but expects slower hospital revenue growth and margin pressure ahead of the company’s third-quarter 2026 results.
Citi has lifted its target price for Rede D’Or shares to R$52 from R$48 and kept a buy recommendation, signalling about 19% upside from the previous close. The new valuation comes ahead of the company’s third-quarter 2026 results, which the bank expects to show a mixed operating picture: hospital revenue should continue to grow, but at a slower pace, while margins come under pressure. The change in target price was driven mainly by a lower discount rate in Citi’s model, with operating forecasts left broadly unchanged.
Even with the higher target, Citi says the stock no longer looks as cheap as it did before. At 16.6 times estimated 2027 earnings, the shares already reflect a good deal of optimism, and any further improvement in investor sentiment is likely to depend on a clearer acceleration in hospital volumes. That is a notable shift from earlier months, when the bank had already trimmed its valuation after first-quarter 2026 results and then argued that Rede D’Or’s long-term fundamentals remained intact.
For the third quarter, Citi expects hospital revenue to rise 7% from a year earlier, but says the pace should ease because of a tougher comparison base, including high occupancy levels in the same period of 2025 and recent de-listings from the network. The bank also expects patient days to fall 2.4% year on year. A modest contribution from 60 new beds opened during the quarter is unlikely to offset the slower growth, while a normalisation in spending on materials and medicines, which Citi sees at 19.5% of gross revenue, should still leave the hospital business under margin pressure. On that basis, adjusted Ebitda margin is forecast to slip by 0.7 percentage points from a year earlier, despite a relatively clean comparison in the third quarter of 2025.
Citi sees part of that pressure being absorbed by SulAmérica, the health insurance and healthcare arm tied to Rede D’Or. The bank expects a 2.5 percentage point decline in medical loss ratio, a measure of claims costs as a share of premium income, which in health insurance helps indicate whether underwriting is becoming more profitable. In the US, the metric is closely watched because regulators use it to ensure insurers spend most premium income on medical care rather than overhead; while the Brazilian business is governed differently, the same basic logic applies. Citi said the improvement in underwriting, along with a more balanced comparison for litigation-related costs, should support third-quarter Ebitda of R$727 million and reported net profit of R$1.28 billion. Excluding capitalised interest, minority interests and acquisition-related amortisation, the estimate is R$1.221 billion.
The bank remains constructive on the stock over the longer term because of what it sees as the quality of the business, its ability to compound earnings over time, the scarcity of comparable assets and recent share purchases by the company and its controlling shareholders. According to the report, those purchases totalled about R$2.5 billion in 2026 through the date of the analysis, offering additional support to the shares even as near-term operating conditions remain challenging.
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