Here's Why You Should Retain HMS Holdings in Your Portfolio

HMS Holdings Corp HMSY is gaining on strong momentum within the Payment Integrity (PI) and Population Health Management (PHM) segments. However intense competition has been offsetting the positives.

The company, with a market capitalization of $2.61 billion, is the leading provider of Coordination of Benefits (“COB”) services to government and commercial healthcare payers. The company’s earnings are expected to improve 10% over the next five years. This Zacks Rank #3 (Hold) company has a trailing four-quarter earnings surprise of 6.6%, on average.

In the past six months, the stock has gained 21.4% compared with a 19.6% rise of its industry.

Let’s delve deeper into the factors working in favor of the company.

PI Solutions Hold Promise: PI comes under HMS Holdings’ unique suite of Analytical Services. Management expects PI to be a significant contributor to the Analytical Services wing in 2020. The company continues to witness expansion of PI client base in both the commercial health plan and government markets.

Of late, the company has signed its second Medicaid managed care plan to leverage its population risk intelligence solution. The plan aims to target conditions like opioid abuse, at-risk pregnancies and chosen non-ADHD medications for those who were not receiving behavioral therapy.

Per management, HMS Holdings commenced a research project with an Australia-based digital health research organization to leverage leading U.S. and Australian Universities to research healthcare issues of critical importance. Notably, the company’s work with Stanford University is focused on detecting potential risk factors for opioid abuse and misuse, which is an international healthcare crisis.

Despite few state and health plan clients of the company having paused some of its Payment Integrity work during the second quarter of 2020, the PI product line is expected to get a boost during the third quarter of 2020.

PHM Gaining Ground: The PHM segment comes under HMS Holdings’ unique suite of Analytical Services.

The company expects the momentum in the PHM business line to continue in the near term as well. It anticipates solid revenue growth on an annual basis driven by introduction of improved solutions and expansion of its share of important clients. The company continues to gain traction in the market with its sales pipeline being solid.

Investment made by the company in new sales leadership and business development activities will be driving a stronger PHM sales pipeline in 2020.

Competition in Cost-Containment Space:  The U.S. healthcare insurance benefit cost containment industry offers cost-containment services, both directly and indirectly (through subcontracting). Competition is therefore stiff in this dynamic industry as customers have many alternatives available to them.

Within the care management and risk analytics sector, HMS Holdings primarily competes with vendors who provide these and other population health management technology services.

HMS Holdings’ primary competitors include Accenture plc, Cotiviti Corporation, DXC Technology Company, Equian LLC, EXL Service Holdings, Inc., Experian Health, IBM Watson Health, LexisNexis and MedHok, Inc.

Estimates Trend

The Zacks Consensus Estimate for 2020 revenues is pegged at $682.5 million, suggesting an 8.9% rise from the year-ago reported number.The same for earnings is pegged at $1.21, indicating a fall of 8.3% from the year-ago reported number.

Key Picks

A few better-ranked stocks from the broader medical space include OPKO Health OPK, Surmodics SRDX and Merit Medical Systems MMSI.

OPKO Health’s long-term earnings growth rate is estimated at 12%. The company presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Surmodics’ long-term earnings growth rate is estimated at 10%. The company presently carries a Zacks Rank #2.

Merit Medical Systems’ long-term earnings growth rate is estimated at 11.9%. It currently carries a Zacks Rank #2.

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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.

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