Will AmSurg's Merger With Envision Healthcare Drive Growth?

On Jul 11, 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.

To further expand its footprint in the huge and fast-growing fragmented physician outsourcing market, AmSurg recently agreed to merge in an all-stock deal with Envision Healthcare Holdings, Inc. (NYSE:EVHC) . This huge tax-free merger of two healthcare industry biggies is expected to create one of the largest providers of physician services in the U.S dealing in specialties including emergency, hospitalist, anesthesia, radiology and pediatric.

Also, the combined enterprise will have an expanded customer base with respect to ambulatory surgery, post-acute care and medical transportation solutions.

Earlier, AmSurg acquired Sheridan Healthcare – a prominent multi-specialty outsourced physician services provider, for a transaction value of $2.35 billion; in Jul 2014 with the same objective to expand its base in the physician outsourcing market. By this buyout AmSurg expects to capture substantial shares in the radiology and emergency medicine services spaces; wherein Sheridan holds a strong position.

ASCs depend upon third-party reimbursement programs, including governmental and private insurance programs, which primarily pays for all of the services rendered to patients. In July, CMS announced the final payment rule for ASCs for the year 2016. Based on this proposed rule, AmSurg expects an average increase of 1% or $2 million in revenue across its specialties.

The calculation of this final rule indicates that AmSurg will see a 0.5% increase ($1 million) in revenues across all specialties in 2016. Surely this surge will benefit AmSurg in days ahead.

On the flip side, AmSurg continues to face escalating operating expenses for the past few quarters, which in turn has been affecting the company’s margin growth. Widespread macroeconomic turmoil as well as constrained hospital spending has the potential to reduce demand for ASCs like AmSurg.

Zacks Rank & Key Picks

Currently AmSurg holds a Zacks Rank #2 (Buy). Some other medical stocks worth considering are Boston Scientific Corp. (NYSE:BSX) , NuVasive, Inc (NASDAQ:NUVA) and GW Pharmaceuticals plc (NASDAQ:GWPH) . While Boston Scientific and NuVasive sport a Zacks Rank #1 (Strong Buy), GW Pharmaceuticals holds a Zacks Rank #2 (Buy).