AmSurg (AMSG) Q3 Earnings, Sales Beat Estimates; View Up

TN-based healthcare provider AmSurg Corp. (NASDAQ:AMSG) reported adjusted earnings per share (considering share-based compensation as a regular expense) of $1.06 during the third quarter of 2016. The earnings figure exhibits a 7.1% rise from the year-ago quarter and has also exceeded the Zacks Consensus Estimate of $1.04. Strong revenue growth primarily drove the upside in earnings.

Including one-time items, the company reported third-quarter net earnings from continuing operations of $37.7 million or 69 cents per share, displaying a decline of 7% or 17% from the year-ago quarter equivalent.

Quarter in Details

AmSurg’s net revenue in the third quarter rose 26.5% year over year to $822.2 million, beating the Zacks Consensus Estimate of $773 million. Revenue growth mainly resulted from the success of management’s acquisition strategy and deployment of capital. Additionally, strong same-center and same-contract revenue growth for the Ambulatory and Physician Services divisions drove the top line.

In the reported quarter, net revenue from Ambulatory Services increased 1.8% year over year to $314.6 million with a 2.3% improvement in same-center revenues. Ambulatory Services ended the quarter with 260 centers and one surgical hospital. Ambulatory Services acquired three centers while one center was divested. The company ended the quarter with two centers under LOI (Letter of Intent) and one center under development.

Physician Services net revenue in the third quarter totaled $507.6 million, up 48.8% year over year on account of 5.9% growth in same contract revenues, 1% rise in new contract revenues and 31.6% improvement in acquisition revenues. Same contract revenue growth of 7.5% in the quarter included a 2.9% increase in patient encounters per day and a 4.6% rise in net revenue per patient.

Adjusted operating expenses spiked 35.2% year over year to $641 million due to increased salaries and benefits (up 40.8% to $461.2 million), supply cost (up 0.5% to $49.7 million), other operating expenses (up 16.3% to $114.9 million) and transaction costs (up 702.3% to $16.9 million). As a result, adjusted operating margin contracted by a huge basis points to 22.0% in the quarter.

AmSurg exited the quarter with $106.1 million in cash and cash equivalents versus $74.1 million at the end of the second quarter of 2016. Net cash flow from operating activities in the quarter was $155.9 million, down from the year-ago quarter’s figure of $175.8 million.

2016 Outlook

For 2016, AmSurg has raised its revenue guidance range to reflect the Physician Services joint venture consolidation. The company currently expects to generate revenues in the range of $3.15–$3.17 billion, compared to the earlier guidance of $3.05–$3.09 billion. The current 2016 Zacks Consensus Estimate for revenues stands at $3.09 billion, which is below the company's guided range.

However, on the bottom-line front, the company narrowed the high end of the earlier guidance. AmSurg currently expects to deliver adjusted EPS of $4.28–$4.33. The current 2016 Zacks Consensus Estimate for adjusted EPS is pegged at $4.02, much below than the company’s projection.

Further, the company continues to expect same-center revenue growth of 3–5% for both Ambulatory and same contract revenue growth of 6–8% for Physician Services. New contract growth is expected to be 1%.

Additionally, AmSurg provided its EPS guidance for the fourth quarter of 2016. The company expects adjusted EPS in the range of $1.23–$1.28. The current Zacks Consensus Estimate stands at $1.21, which is within the guided range.

Our Take

AmSurg ended the third quarter of 2016 on an impressive note, with quarterly numbers beating the Zacks Consensus Estimate on both fronts. Also, on a comparable year-over-year basis, the outcome was promising. Strong growth in the third quarter was driven by successful implementation of the company’s organic growth and acquisition strategies in both the Ambulatory and Physicians Services businesses.

Meanwhile, we view the company’s 2016 outlook as an encouraging one with a raised revenue outlook and changed EPS guidance both beating the Zacks Consensus Estimates.

Nevertheless, the recent initiatives by government agencies to curtail healthcare expenditures have encouraged a shift toward ambulatory surgery centers instead of admissions to traditional hospitals. This, in turn, should benefit home healthcare providers like AmSurg.

Zacks Rank & Key Picks

AmSurg 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) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals surged 63.2% year to date compared to the S&P 500’s 2.6% over the same period. The company’s four-quarter average earnings surprise is 41.6%.

Baxter international rallied 24.4% in the past one year, comparing favorably with the S&P 500’s -0.2%. It has a trailing four-quarter average positive earnings surprise of 27%.

Bovie Medical recorded 162.6% gain in the past one year, above the S&P 500’s 2.4%. The company has a trailing four-quarter average earnings surprise of 6.3%.

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