Amedisys (AMED) Earnings, Revenues Meet Estimates In Q3

Amedisys Inc. (NASDAQ:AMED) reported adjusted earnings from continuing operations of 36 cents per share in the third quarter of 2016, up 5.8% year over year but in line with the Zacks Consensus Estimate.

Excluding adjustments, the company's reported earnings of 34 cents a share were up 36% from a year ago.

Amedisys primarily derives revenues from its home health and hospice agencies. Third-quarter 2016 net service revenues grossed $361.6 million, up 10.7% year over year.The top line is almost in line with the Zacks Consensus Estimate of $362 million.

The Quarter in Detail

Within the company's Home Health division, net service revenues totaled $268.9 million (up 6.1%) in the third quarter. Medicare revenues of $203.9 million improved 7.2% year over year while non-Medicare revenues climbed 2.8% to $65 million.

Same-store Medicare fee for service admissions grew 1% on 3% growth in total episodic admissions.

Within the Hospice division, net service revenues grossed $82.0 million (up 12.3% year over year), including Medicare revenues of $77.0 million (up 12.2%) and non-Medicare revenues of $5.0 million (up 13.6%).

The company reported a 145 basis point (bps) contraction in gross margin to 41.3% in the third quarter while gross profit rose 7%. Expense on salaries and benefits scaled up 10% to $77.0 million. Other expenses also increased 7.8% to $42.6 million. Adjusted operating income of $29.7 million in the reported quarter reflects a decline from the year-ago adjusted operating income of $30.1 million. Operating margin contracted 99 bps to 8.2% from the year-ago figure.

Amedisys exited the third quarter of 2016 with cash and cash equivalents of $8.9 million compared with $9.9 million at the end of the preceding quarter. The company's long-term obligations (excluding current portion) were $88.8 million, marginally down from $89.5 million at the end of the second quarter. Year-to-date net operating cash flow was $6.8 million compared with $30.7 million in the year-ago period.

Our Take

Amedisys ended the third quarter of 2016 with earnings and revenues meeting estimates. In the Home Health division, the company witnessed strong organic growth in Medicare and non-Medicare revenues. Amedisys currently focuses on three priorities – clinical distinction, driving organic and inorganic growth, realizing operational efficiencies and becoming an employer of choice.

However, the recent proposed rule for Home Health in 2017 by CMS, which includes a shift to a budget neutral plan for reimbursement, may affect growth for the company. Escalation in operating expenses and contraction in margins continue to raise concern.

Zacks Rank & Key Picks

Amedisys currently has a Zacks Rank #4 (Sell). Better-ranked medical stocks are GW Pharmaceuticals plc (NASDAQ:GWPH) , Baxter International Inc. (NYSE:BAX) and Bovie Medical Corporation (NYSE:BVX) . GW Pharmaceuticals and Baxter sport a Zacks Rank #1 (Strong Buy) while Bovie Medical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals surged 71.6% year to date compared to the S&P 500’s 4.3% over the same period. The company has a four-quarter positive average earnings surprise of 41.6%.

Baxter international rallied 26.5% in the past one year, comparing favorably with the S&P 500’s 2.6%. It has a trailing four-quarter average positive earnings surprise of 27%.

Bovie Medical recorded a 153.5% gain in the past one year, way better than the S&P 500’s 2.6%. The company has a trailing four-quarter positive average earnings surprise of 28.7%.

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