What happened
InnovAge (INNV 2.90%) is one company that will be very glad to see 2021 consigned to the history books. On Monday, the company's stock fell by 11%, on the back of two recommendation downgrades from prominent investment banks.
So what
The catalyst for the downgrades was InnovAge's disclosure last week that it had been hit with sanctions from the Centers for Medicare and Medicaid Services (CMS). The Colorado-based senior healthcare specialist will apparently be compelled to suspend all new enrollments at its service centers in the state.
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InnovAge said the sanctions were "based on deficiencies detected in an audit that was conducted earlier this year the final results which have not yet been disclosed to the company."
As a result of this development, InnovAge has withdrawn its 2022 guidance.
On Monday, Barclays downgraded its recommendation on InnovAge to equal weight (neutral) from its previous overweight (buy). Analyst Sarah James also took an axe to her price target on the stock -- it's now $6.50, far down from the preceding $22. James is concerned with the uncertainty around the sanctions, sensibly enough. Her new view on the shares is based on them being lifted by the end of 2022.
Goldman Sachs followed suit. Prognosticator Jamie Perse also now believes the stock is a neutral, with a price target of $4. That's a dramatic change from the previous buy recommendation with a $15 target.
Now what
Both analysts are right to change their tune on InnovAge stock. While we of course need to learn more about these "deficiencies," the CMS' move is a serious blow to the company even if it only lasts for a relatively short stretch of time.