Addus HomeCare's (ADUS) exposure to Medicaid funding pressures is expected to be offset by potential benefits from industry consolidation, although slowing state reimbursement rates could constrain growth, BofA Securities said in a Monday note.

The brokerage expects state budget pressures to slow Medicaid rate increases for personal care services to about 1% on average in 2027, with Illinois, which accounts for 42% of Addus' personal care revenue, expected to have flat rates in 2027 and Texas, representing 20%, expected to remain flat through September 2027.

BofA noted that with about 75% of Addus' revenue tied to Medicaid, the company is highly exposed to funding changes. A 1% Medicaid rate cut could lower EBITDA by about 6%, before offsets, while slower rate growth could limit the company's ability to offset cost inflation.

Management could pursue larger acquisitions as industry consolidation accelerates, but M&A is unlikely to fully offset broader Medicaid funding pressures, with additional risks expected in 2028 as states face further funding cuts, the report added.

BofA downgraded the stock to neutral from buy and lowered its price target to $125 from $140.

Addus HomeCare shares were down 1.8% in Monday trading.

Price: 115.11, Change: -1.98, Percent Change: -1.69