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Despite a seemingly positive move on paper, Cano Health (NYSE:CANO) — which provides value-based primary care for seniors — only saw a modest blip to the downside in early Friday afternoon. Yesterday morning, management announced the completion of a 1-for-100 reverse stock split of its Class A and Class B common shares. Nevertheless, the move seems to symbolize a “Hail Mary” pass to inject credibility into struggling CANO stock.
According to the accompanying press release, the reverse split became effective immediately following Cano’s filing of the Certificate of Amendment to its Certificate of Incorporation with Delaware’s Secretary of State on Nov. 2. Further, as the New York Stock Exchange opened earlier today, CANO stock continued to trade under its original ticker symbol but with a new CUSIP number (13781Y 202).
Also known as a Committee on Uniform Securities Identification Procedures number, this label represents a unique nine-character identification number assigned to all stocks (and registered bonds) in the U.S. and Canada, per Investopedia. Notably, the ticker and CUSIP number for Cano’s warrants remain unchanged.
Due to the reverse split, the healthcare service provider’s Class A and Class B shareholders will receive one new share of their respective category for every 100 shares they own. Notably, “[t]he Reverse Stock Split will not affect any stockholder’s percentage ownership interests or proportionate voting power, except to the extent that it results in a stockholder receiving cash in lieu of fractional shares.”
CANO Stock is Behind the Eight Ball
Similar to the motivation for other reverse split decisions, Cano wants to inject credibility back into CANO stock. Per the company’s press release:
“As previously disclosed, the Company believes the Reverse Stock Split will increase the price per share of the Company’s Class A common stock and thus enable it to regain compliance with the price criteria of Section 802.01C of the NYSE Listed Company Manual…”
In addition, management seeks CANO stock “to be more attractive to a broader range of investors.” According to Google Finance — which still provides pre-split adjusted figures at the time of writing — shares closed at 11 cents yesterday. Given such a subterranean price point, presumably, only extreme speculators would be interested in such an opportunity.
From that angle, management’s decision to conduct a reverse split is understandable. Frankly, the leadership team had little choice. According to the NYSE’s website, the vaunted exchange requires a minimum share price of $4. Still, the Financial Industry Regulatory Authority (FINRA) offers a clear warning about the underlying practice:
“If a reverse split is announced and actually occurs, proceed with caution. Reverse splits tend to go hand in hand with low-priced, high-risk stocks. This is especially true with reverse splits that result in a post-split share price that is many times the price of the stock’s current price.”
While it’s commendable that Cano’s team isn’t giving up, the company suffers from severe red flags. Among them, the large debt load and the issuance of new debt presents a significant challenge.
Why It Matters
Critically, analysts are skeptical about CANO stock, pegging shares a consensus moderate sell. This assessment breaks down as five holds, two sells and, most conspicuously, zero buys. On a pre-reverse-split basis, the average price target landed at 51 cents.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.