Aveanna Healthcare's (AVAH) growing market presence and steady improvement in preferred payor mix create a natural buffer against potential Medicaid budgetary pressures, RBC Capital Markets said Wednesday.

The company's growing concentration of preferred payor clients shifts its volume toward managed care organizations that value and differentially reimburse private duty nursing services to reduce total healthcare spend, according to the note.

RBC said it believes preferred payor relationships largely insulate Aveanna's PDN platform from state budget constraints, especially as payors seek to expand access to higher quality care in lower cost settings. The brokerage added that the recently completed Family First acquisition enhances the company's scale and market density.

The company presents a strong value proposition for Medicaid managed care payors that seems to be underappreciated by the market, the brokerage said. The stock's recent pullback offers a compelling buying opportunity, it added.

RBC upgraded Aveanna Healthcare to outperform from sector perform, while maintaining a price target of $10.

Shares of Aveanna rose more than 6% in Wednesday trading.

Price: 6.87, Change: +0.40, Percent Change: +6.11