Stock Analysis & Valuation Surgery Partners, Inc. (SGRY)

• Previous Close: $14.86
• Sector Valuation Confidence Level: High

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	49.45	233
Intrinsic value (DCF)	9.62	-35
Graham-Dodd Method		n/a
Graham Formula		n/a

Strategic Investment Analysis

Company Overview

Surgery Partners, Inc. (NASDAQ: SGRY) is a leading operator of surgical facilities and ancillary healthcare services in the U.S., specializing in non-emergency procedures across multiple specialties, including gastroenterology, orthopedics, and ophthalmology. The company operates 126 surgical facilities, including 108 ambulatory surgery centers (ASCs) and 18 surgical hospitals, spanning 31 states. Its business model focuses on cost-efficient outpatient care, supported by ancillary services such as diagnostic imaging, pharmacy, and physical therapy. Surgery Partners benefits from the growing shift toward outpatient procedures, driven by lower costs and improved patient outcomes compared to traditional hospital settings. Positioned in the high-growth healthcare facilities sector, the company serves a critical role in the value-based care ecosystem. Despite macroeconomic pressures, its diversified geographic footprint and multi-specialty approach provide resilience. Investors should note its exposure to reimbursement risks and regulatory changes in the healthcare industry.

Investment Summary

Surgery Partners presents a high-risk, high-reward investment case. The company operates in the rapidly expanding outpatient surgery market, benefiting from favorable industry trends such as aging demographics and the shift toward cost-efficient care. However, its high leverage (total debt of $3.7B vs. market cap of $2.92B) and negative net income (-$168.1M in the latest period) raise concerns about financial stability. Positive operating cash flow ($300.1M) suggests underlying operational strength, but capital expenditures and debt servicing remain headwinds. The stock’s high beta (1.966) indicates volatility, making it suitable for risk-tolerant investors. Long-term growth depends on successful integration of acquisitions and margin improvement. Regulatory risks, including Medicare reimbursement changes, could impact profitability.

Competitive Analysis

Surgery Partners competes in the fragmented outpatient surgery market, where scale and payer relationships are critical. Its competitive advantage lies in its diversified multi-specialty platform and strategic partnerships with physicians, which drive case volume and revenue stability. The company’s focus on ASCs aligns with industry cost-containment trends, as these facilities typically offer 40-60% lower costs than hospital outpatient departments. However, its smaller scale compared to giants like HCA Healthcare limits negotiating power with insurers. Surgery Partners’ high debt load also restricts financial flexibility relative to peers. Its ancillary services (e.g., anesthesia, diagnostics) provide cross-selling opportunities but face competition from specialized providers. Regional competitors with denser local networks may outperform in specific markets. The company’s growth strategy relies on acquisitions, exposing it to integration risks. Success hinges on maintaining surgeon retention and optimizing facility utilization amid labor cost pressures.

Major Competitors

• HCA Healthcare, Inc. (HCA): HCA dominates the hospital and ASC market with vast scale (186 hospitals, 2,300+ sites). Its strengths include strong insurer relationships and economies of scale, but it lacks Surgery Partners’ pure-play ASC focus. HCA’s diversified revenue streams provide stability but lower growth potential in outpatient segments.
• U.S. Physical Therapy, Inc. (USPH): USPH specializes in outpatient physical therapy, overlapping with Surgery Partners’ ancillary services. Its asset-light model yields higher margins but lacks surgical revenue diversification. USPH’s smaller footprint limits geographic reach compared to SGRY’s national presence.
• Tenet Healthcare Corporation (THC): Tenet operates 65 hospitals and 450+ ASCs, competing directly in outpatient surgery. Its larger scale aids pricing power, but hospital-centric operations are less agile than SGRY’s ASC-focused model. Tenet’s turnaround efforts have improved profitability, yet debt remains a concern.
• The Ensign Group, Inc. (ENSG): Ensign focuses on post-acute care and skilled nursing, with limited ASC exposure. Its operational efficiency is a strength, but it doesn’t directly compete with SGRY’s surgical specialties. Ensign’s leaner balance sheet provides more flexibility.
• Amedisys, Inc. (AMED): Amedisys leads in home health and hospice, overlapping minimally with Surgery Partners. Its high-margin services face regulatory scrutiny. While not a direct competitor, it represents alternative outpatient care investment exposure.