AmSurg (AMSG): Strong Q1 On Organic & Acquisition Growth

On May 20, 2016, we issued an updated research report on Nashville, TN-based AmSurg Corp. (NASDAQ:AMSG) – a leading operator of single-specialty practice-based ambulatory surgery centers (ASCs). The company develops, acquires and operates practice-based ASCs in partnership with physician practice groups throughout the U.S.

AmSurg commenced 2016 on a satisfactory note, with its first-quarter revenue beating the Zacks Consensus Estimate while the EPS figure was in line with the mark. Revenue was driven by successful execution of the company’s organic growth and acquisition strategies in both the Ambulatory and Physicians Services businesses. However, the company’s weak cash balance raises concerns.

AmSurg, along with Sheridan Healthcare, marked 2015 as a year of great transformation, execution and positive momentum. The company is expected to continue with the same growth trend in 2016 as well. The first quarter apparently started off in this fashion, driving 27% increase in net revenue with strong same-center and same-contract revenue growth for the Ambulatory Surgery and Physician Services Divisions. The ASC division ended the quarter with 256 centers and 1 surgical hospital. Within the Physician Services Division, same-contract revenue growth was 12% and the division contributed 58% of the company's total revenue.

Management is upbeat about the company’s earlier takeover of the multi-specialty outsourced physician services provider – Sheridan Health. This buyout is expected to help AmSurg accelerate growth in its own existing markets and create a more comprehensive development pipeline across all service lines.

The combined entity with its unique business model is likely to pose a major challenge in the competitive niche by covering 38 states and establishing its hold on a total addressable market as large as $70 billion. It is also expected to improve the company’s response to emerging market trends.

On the flip side, the consistent rise observed in the company’s operating expense continues to weigh on its bottom line. Evidently, in the first quarter of 2016, AmSurg’s adjusted operating expenses surged 29.5% year over year.

Moreover, the global downturn in the macroeconomic scenario impacted the market for medical technologies in the U.S. Add constrained hospital spending to these concerning macroeconomic factors, and lower demand looks evident for ASCs like AmSurg.

AmSurg currently carries a Zacks Rank #3 (Hold).

Key Picks in the Sector

Some better-ranked stocks in the medical sector are HEALTHSOUTH Corp. (NYSE:HLS) , LHC Group, Inc. (NASDAQ:LHCG) and US Physical Therapy Inc. (NYSE:USPH) . All the three stocks hold a Zacks Rank #2 (Buy).