National bank cut target to 4,25$CMS final decision a negative but margins remain healthy Centers for Medicare & Medicaid Services (CMS) announced the final rate schedule for FY2018 including a further cut (vs. Jul-17 proposal) to CRHs fees, applicable Jan-18. The company provided guidance that the final decision will impact revenue and EBITDA by a further 3.5% & 6.5%, respectively (vs. Jul-17 guidance) resulting in an overall EBITDA margin of ~43%. The CMS decision, while a negative, does provide clarity on regulatory concerns and CRHs margins remain healthy. Q3 conference call updates The most important takeaway, in our view, was the discussion of the relative increase in lower rev/EBITDA federal cases vs. commercial ones we assume the Q3 increase in federal cases continues & impacts results into FY2018. Other updates included: 1) mgmt sees current share price as undervalued & will explore strategies to realize value; 2) expecting a stronger q/q Q4 although with less pronounced seasonality vs. previous years; 3) acqn pipeline robust though deal closing could stretch into Q1/18 given the busier Q4 (procedure flow); and 4) hurricane-related cancellations to be re-scheduled by Q1/18. Maintain Outperform, target to Cdn$4.25 (was Cdn$5.25) We have updated our forecast to include the final impact from CMS decision and, importantly the observed payor mix shifts, which, we believe, will further impact results in 2018. Our assumptions now include 2018e average pricing of ~$380/case and overall case volume of ~254K, which includes ~22k cases from the US$25 mln of assumed acquisitions. The impact is a ~13% reduction to our 2018e EBITDA, implying a Cdn$4.25 target (was Cdn$5.25) on a ~8x 2018e EV/EBITDA multiple. We are maintaining our OP rating as CRHs current valuation implies, in our opinion, 2018 pricing of $308/case, ~33% EBITDA margin and no acquisitions. We view these events as unlikely to unfold in 2018. CRH trades cheaply at 5.2x 2018e EV/EBITDA (~6.2x excluding acquisitions) vs. peers currently at 10.4x