Air Methods: Strong Buy on Q3 Results, Tri-State Buyout
On Nov 17, Zacks Investment Research raised Air Methods Corp. AIRM to a Zacks Rank #1 (Strong Buy). The upgrade was driven by impressive third-quarter 2015 results, an accretive Tri-State acquisition and positive estimate revisions.
Why the Upgrade?
Air Methods reported earnings from continuing operations of $1.18 per share, which beat the Zacks Consensus Estimate by 22 cents (almost 23%). Notably, the average positive earnings surprise over the last four quarters is 16.5%.
Earnings surged 35.6% year over year driven by 12.4% growth in revenues, which totaled $311.3 million. The improved top line can be attributed to strong performances by Air Medical Services (up 12.7%) and Tourism (up 6.7%).
Community-based patient transports increased 9.7% to 17,330. Same-base requests for community-based service increased 3.6%. Net revenue per community-based transport improved 7.2% to $12,839.
AMS fuel expense dropped by $0.9 million on a year-over-year basis, while fuel expense per flight hour decreased 22.3%.
Total passengers- Tourism increased 6.9% to 134,157. Tourism fuel expense per flight hour decreased 37.8% on a year-over-year basis.
Air Methods also announced the acquisition of Tri-State Care Flight, which is a transport provider catering to Arizona, New Mexico, Nevada, and Colorado critical care markets. The company will pay $222.5 million and the acquisition will be accretive to earnings in the very first year by 20 cents and more than 30 cents in the second year.
Tri-State also provides charter aviation services and operates a fleet comprising 27 fixed wing and rotary aircraft. The acquisition significantly expands Air Methods’ presence in the south-western U.S. markets.
During the quarter, Air Methods amended its credit agreement that improved its liquidity. The company expects to resume share buyback in the fourth quarter and continue in full-year 2016. The company also anticipates lower capital expenditure spending (as percentage of EBITDA) related to fleet rejuvenation in 2016 and beyond. This will further strengthen its balance sheet.
Estimate Revisions
The Zacks Consensus Estimate for fiscal 2015 is currently pegged at $2.89 per share, which moved up 10.3% (27 cents) over the last 30 days. The full-year 2016 estimates also moved up by 5.2% (16 cents) to the present $3.25 per share over the same period.
Other Stocks to Consider
One may also consider other favorably ranked stocks in the same space like AMN Healthcare AHS, MedAssets MDAS and PRA Health Sciences PRAH. All the stocks carry the same Zacks Rank as Air Methods.
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