Axios Pro Exclusive Content

Citron Research hits Agilon hard

Jul 29, 2022
Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Citron Research didn't pull punches in its recent evaluation of primary care player Agilon Health, with sharp critiques of its business model and valuation.

Why it's the BFD: As the market digests Amazon's nearly $4 billion acquisition of primary care company One Medical, ONEM's publicly traded peers are under the microscope as possible takeover candidates.

By the numbers: Having opened the week's trading around $24.50, AGL climbed to just shy of $26.50 Wednesday, before Citron hit send at around 1 pm. (No extra points for spotting when it happened on the chart.)

  • Shares slumped immediately after the release, hitting a low of $24.05 within the first hour after the report hit.
  • From that low, the stock has ground steadily higher, closing Thursday at $25.19, and recently trading at $25.10.

What they said: Citron's report cited four major concerns.

  1. Agilon's direct contracting business model, which has drawn ire from regulators for leveraging payment loopholes. (Instead of buying up clinics or opening new ones, Agilon signs physicians up for its platform and shares profits from Medicare reimbursement.)
  2. Fallout from a Medicaid fraud investigation in California hitting Agilon as it was prepping for its IPO, completed last year.
  3. Valuation, valuation, valuation. "Before doing the comparisons, it must be understood that Agilon owns nothing proprietary that would give it a market premium," the report states.
  4. In exchange for Medicare profit-sharing, Agilon covers losses doctors may incur from transitioning to value-based care, which Citron said had differentiated the company — but that may soon be moot, thanks to new CMS regulation.

The other side: After Citron's smackdown, JPMorgan analysts defended Clayton Dubilier & Rice-backed Agilon in a note on Wednesday, calling into question some of Citron's claims.

  • According to JPM's note, Citron's warning cry on AGL's valuation is "highly flawed." CD&R declined to comment to Axios.

Flashback: Agilon went public in 2021, valuing the company at $8.85 billion. Agilon's listing followed One Medical's successful 2020 debut, as well as Oak Street Health's IPO and Cano Health's $4.4 billion SPAC deal — all of which we're now watching closely.

The bottom line: We know health care strategics like CVS (a reported bidder on ONEM) are itching to keep up with Amazon and could go after the Agilons of the world in a bid to own more primary care.

Of note: After 17 years of short-selling research, this is Citron’s first such report since Andrew Left said in 2021 that the firm would no longer publish short-selling research, following a bet against GameStop.

Go deeper