Regis Healthcare (ASX:REG) faces weaker fiscal 2027 earnings growth as the 2.6% increase in Australian National Aged Care Classification (AN-ACC) funding to AU$303.19 per resident per day falls short of rising wage and non-labor costs, Jefferies said in a Sept. 4 note.

The investment firm cut its fiscal 2027 earnings before interest, taxes, depreciation, and amortization (EBITDA) growth forecast to 4.2% from over 13%.

Jefferies said government funding would need to better account for rising costs in residential aged care, as providers face wage increases from multiple sources alongside broader inflationary pressures.

The investment firm noted that AN-ACC pricing has risen steadily since October 2022, with earlier increases supporting mandated care and healthcare inflation, while the latest rise is the lowest annualized increase to date and class weights remain unchanged.

It cited the March Stewart Brown survey, which found average direct-care revenue of AU$310.11 per resident per day and a direct-care margin of AU$5.91 per bed day, while 35% of the 1,149 surveyed homes recorded an EBITDA loss as deficits in everyday living and accommodation outweighed direct-care surpluses.

Jefferies said the projected rise in Australians needing residential aged care to 400,000 from 200,000 by 2040 highlights the need for more capacity, with just 802 net new beds added in fiscal 2025.

Jefferies reaffirmed a buy rating on Regis Healthcare with a price target of AU$7.40.