On Jan 13, we downgraded our recommendation on
) to Underperform from Neutral. We are disappointed about HWAY's
third-quarter 2013 results as both the company's top line and
bottom line lagged the respective Zacks Consensus Estimate.
Further, the company lowered its 2013 guidance based on the
dismal results in the first nine months of 2013.
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HEALTHWAYS INC (HWAY): Free Stock Analysis
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On Oct 24, Healthways' earnings per share dropped by a whopping
66.7% to 5 cents from the year-ago level of 15 cents and also
missed the Zacks Consensus Estimate of 11 cents. Net income came
in at $1.8 million, down 64% from $5.0 million a year ago.
Lower participation in the company's wellness programs as a
result of significant headwind in the underlying industry, led to
the downfall. Moreover, management had overestimated the number
of risk lives available in 2013 for its total population
management services to health systems.
Revenues remained flat year over year at $166.6 million in the
quarter, trailing the Zacks Consensus Estimate of $185 million.
However, excluding the two terminal contracts (including the one
with Cigna Corp.), revenues improved 14.2% year over year.
HWAY scaled down its full year-2013 revenue expectations to the
range of $665-675 million from the earlier range of $710-$750
million. Fourth-quarter revenues are forecasted in the band of
$171 to $181 million.
Healthways also tweaked its bottom-line outlook to reflect
slower-than-anticipated market transition rate of risk-based
lives to Accountable Care Organizations (ACOs). Management
anticipates loss per share of about 4 cents to 10 cents compared
with the prior outlook of earnings per share of 18 cents-28 cents
for 2013. Fourth-quarter 2013 earnings are expected in the range
of nil to 6 cents.
Following the release of third quarter results, the Zacks
Consensus Estimate for 2013 earnings fell significantly to a loss
of 7 cents from earnings of 22 cents. The Zacks Consensus
Estimate for 2014 earnings also declined 48.1% to 28 cents per
share. Currently, HWAY retains a Zacks Rank #5 (Strong Sell).
Uncertainty about healthcare reform and a sluggish economy exert
a negative impact on new business. Continued high unemployment in
the U.S. implies fewer lives covered by employer sponsored or
commercial health plans. This reduces the number of billable
lives using Healthways' disease management services, and
consequently the company's revenues.
Other Stocks to Look For
Some better-ranked stocks that are performing well in the medical
services industry include
Air Methods Corp.
Envision Healthcare Holdings, Inc.
). All these stocks carry a Zacks Rank #2 (Buy).