We have reiterated our Neutral recommendation on
) with a target price of $29.00.
Even amidst headwinds like reimbursement issues, higher expenses
and economic uncertainty, AmSurg reported earnings per share (EPS)
of 51 cents in the second quarter of fiscal 2012, up 21% year over
year. Reported EPS was also ahead of the Zacks Consensus Estimate
by a penny and remained at the higher end of the company's guidance
range of 49−51 cents.
AmSurg has also been able to deliver a satisfactory progress
with the third consecutive quarter of over 20% sales growth. During
the quarter revenues increased a robust 23% year over year to
$231.6 million and exceeded the Zacks Consensus Estimate of $229
million. This was primarily driven by the addition of several new
centers through acquisitions and development of additional
ambulatory surgery centers (ASC).
The company exited the quarter with 147 centers performing
gastrointestinal endoscopy procedures, 39 centers performing
procedures in multiple specialties, 35 centers performing
ophthalmology procedures and seven centers performing orthopedic
procedures. Demand for lower-risk, high-volume surgical procedures
performed by ASCs continues to grow, consistent with the
demographics of an aging U.S. population.
We are also encouraged to note that during the quarter there was
a 3% rise in same-center revenues which followed a huge 5% growth
in the first quarter (the best same-center performance since 2007).
The significant increase in same-center revenues represented the
fifth consecutive quarter of increase, on the back of which, the
company increased the low end of its same-center revenue growth
forecast to 2−3% from the previous guidance of 1%−3%.
Moreover, with a strong cash balance and revolving credit
facility, AmSurg is well poised to pursue further acquisitions that
will boost its top line going ahead. The company is even looking
for potential large-chain acquisitions.
We are also encouraged to note that many physicians prefer ASCs
because these centers provide greater scheduling flexibility, more
consistent nurse staffing and faster turnaround time between cases,
allowing them to perform more surgeries in a specified time
Moreover, ambulatory surgery is comparatively less expensive
than hospital-based surgery due to lower facility development
costs, more efficient staffing and space utilization. We expect all
these factors to work in favor of the company.
However, economic uncertainty together with unemployment led to
fewer individuals enjoying company-provided insurance, which
impacted elective procedures such as hip and knee replacements, as
well as screening procedures such as colonoscopies. Further, ASCs
are highly dependent on third-party reimbursement programs
including governmental and private insurance programs to pay on
behalf of patients.
We have concerns regarding AmSurg's dependency on Medicare for
payments, given that the company derived 29% of its revenues from
governmental healthcare programs, primarily Medicare during fiscal
2011. Moreover, AmSurg has been facing significantmargin
compression in the last few years. Besides, the competitive
landscape is tough with the presence of players such as
HCA Holdings, Inc
Presently, AmSurg has a Zacks #2 Rank (short-term Buy
AMSURG CORP (AMSG): Free Stock Analysis Report
HCA HOLDINGS (HCA): Free Stock Analysis Report
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