Evolent Health Inc (EVH) faces a complicated setup going into Q3 results with both positive and challenging factors at play as its fundamentals are improving, while uncertainties remain particularly regarding changes in Humana's (HUM) Medicare star ratings and the possibility of a Cigna (CI) combination with Humana, RBC Capital Markets said in an earnings preview Tuesday.

The company has "good visibility into its Q3 and 2024 guidance, with potential upside due to softening utilization," the investment firm said.

Evolent Q3 results are scheduled for Oct. 30.

The company is an attractive target due to its EBITDA visibility and long-term growth potential however the chances of being acquired are decreasing as more time passes following the report of a takeout interest, according to the note.

RBC said that changes in Humana's Medicare stars ratings are not expected to have a significant near-term impact on Evolent but could be a headwind if lower ratings cause Humana members to switch away from Florida and Arizona plans.

"The bigger risk we think is the increased potential of a Cigna and Humana combination," RBC added.

RBC has an outperform rating on Evolent with a $42 price target.

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