Healthways Tweaks Earnings Estimate - Analyst Blog

Well-being enhancement company Healthways ( HWAY ) recently revised its guidance for 2011 due to the restructuring required following the wind down of the Cigna ( CI ) contract, goodwill impairment due to the recent drop in the company's market capitalization and delay in receipt of certain forecast international revenues from the fourth quarter of 2011 to early 2012.

Following Cigna's decision to not renew its contract after February 2013, Healthways will shut down 2 calls centers, which were devoted to Cigna, by middle of January 2012. Further, the company has cut headcount. Healthways forecasts pre-tax severance and other charges of $8.5 million (or 14 cents to 16 cents per share) in the fourth quarter of 2011.

Besides restructuring charges, Healthways revealed that it anticipates a write-down of goodwill, or an impairment charge, amounting to $184 million (or $5.36 per share) on account of the noteworthy decline in market capitalization following the wind down of the Cigna contract. The write down is non-cash in nature with zero effect on future operations, liquidity or compliance with debt covenants.

Healthways reiterated its revenue guidance for fiscal 2011 in a range of $672 million to $710 million. Its forecast includes sales from domestic operations in a band of $650 million and $680 million and overseas sales of $22 million to $30 million.

The company reiterated domestic earnings per share (excluding restructuring and impairment charges) target in a range of $0.97 to $1.04 for 2011. Healthways reduced its guidance for international earnings per share to a loss of 10 cents to 12 cents per share from a loss of 4 cents to 7 cents earlier. The reduction in international earnings estimate arose because of delay in recognizing revenues from the Caisse Nationale d'Assurance Maladie des Travailleurs Salaries ("CNAMTS") contract from the end of 2011 to early 2012.

The company reduced its guidance for total adjusted earnings per share, excluding restructuring and impairment charges, to a lower range of 85 cents to 94 cents from 90 cents to $1.00 earlier. Including these charges, the company revised its guidance to a range of a loss of $4.56 to a loss of $4.67 for 2011.

The Healthways model encourages people to make favorable lifestyle changes that lead to enhanced well-being, reduced healthcare costs, improved performance and economic value for customers. The company has invested in technology platforms that provide scalable support with large populations. It has tie-ups with 80% of U.S. health plans and counts 39.7 million lives in its customer base.

Due to its unique scalable business model, Healthways shares present a compelling, long-term investment opportunity although it may face many challenges in the short term. Healthways is the leader in a strategically critical and rapidly evolving part of the health care services market. Its fitness program (SilverSneakers) for seniors is available at centers across the U.S. Healthways competes with Express Scrips ( ESRX ) among others. Currently we are Neutral on Healthways, which is in line with a short-term Zacks #3 Rank (Hold).

CIGNA CORP ( CI ): Free Stock Analysis Report

EXPRESS SCRIPTS ( ESRX ): Free Stock Analysis Report

HEALTHWAYS INC ( HWAY ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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