MedAssets: A Strong Sell on Tepid View, Estimate Revision - Analyst Blog

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On Apr 9, 2015, Zacks Investment Research downgraded MedAssets Inc MDAS to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

MedAssets' lackluster 2015 outlook is the primary reason that has induced the rank downgrade. The company expects revenues in the range of $753-$767 million, highlighting a probable increase of 4.6%-6.5% from the 2014 figure of $720.2 million.

Spend and clinical resource management (SCM) revenues are forecasted in the range of $488-$496 million (up 3% at the midpoint), while revenue cycle management (RCM) revenues are expected in the band of $264-$272 million (up 8.7% at the midpoint).

However, adjusted EBITDA is projected in the range of $227 million to $237 million, down 3% to up 1.3%. This is due to a combination of lower revenue growth, a higher proportion of revenue from lower margin advisory solutions and services as well as higher incentive/ employee cash bonus expenses.

Adjusted EPS is likely to lie in the range of $1.13-$1.23, down 8.9% to 16.3% from 2014, owing to higher employee incentives and increased depreciation expenses.

For the first quarter of 2015, net revenue is expected to be up 6.6% to 10.1% on a year-over-year basis. However, adjusted EBITDA margin is projected to be in the 30.1% to 32.3% range, reflecting a decline of 90 to 310 basis points from the year-ago quarter due to a higher proportion of revenue coming from lower margin revenue streams.

Estimate Revision

Given the present headwinds, analysts remain reasonably apprehensive, as is evident from the downward estimate revisions. Over the last 60 days, the Zacks Consensus Estimate fell 28.3% (28 cents) to 99 cents per share for full-year 2015 while the same for 2016 declined 15.4% (20 cents) to $1.10 per share.

Stocks to Consider

While we choose to avoid MedAssets at present, better-ranked stocks in the sector include Air Methods AIRM , ICON Plc ICLR and Intrexon XON . All the stocks sport a Zacks Rank #1 (Strong Buy).

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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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