AmSurg Beats on Revenues and Earnings

Zacks

AmSurg Corp.’s (AMSG) second-quarter 2013 earnings per share (EPS) from continuing operations of 58 cents were 3 cents ahead of the Zacks Consensus Estimate and up 14% year over year. The EPS from continuing operations also sailed past the company’s guidance range of 55−57 cents.

Revenues during the quarter increased 17% year over year to $269.3 million, ahead of the Zacks Consensus Estimate of $266 million. Amsurg believes that the reported quarter has been the strongest seasonally, due to strong performance of the 17 centers acquired last year.

However, same-center revenues remained flat year over year, due to reduction in workers’ compensation reimbursement by the State of California and sequestration. This impact more than offset the benefits from having one additional business day in the reported quarter.

Operating expenses increased 15.6% year over year to $175.7 million due to higher salaries and benefits (up 15.7% to $81.7 million), supply cost (up 19.6% to $39.5 million) and other operating expenses (up 12.5% to $54.5 million). However, adjusted operating margin expanded 78 bps to 34.8% during the quarter.

AmSurg exited the quarter with $39.9 million in cash and cash equivalents versus $46.4 million at the end of 2012, and had $215 million available under its revolving credit facility. For the second quarter, net cash flow from operating activities was $78.7 million compared with $74.5 million in the year-ago quarter.

Outlook

AmSurg reiterated its 2013 revenue guidance in the range of $1.06−$1.09 billion. The current Zacks Consensus Estimate of $1.07 billion remains within the range. However, the company increased its fiscal 2013 EPS outlook. It now expects the fiscal earnings to remain within $2.17−$2.20 (earlier $2.13−$2.18). The current Zacks Consensus Estimate of $2.16 remains below the guidance range.

Further, the company’s 2013 same-center revenue growth forecast was reaffirmed at nil to 1%. Net cash flow provided by operating activities, less distribution to non-controlling interests, is expected in a range of $140−$150 million in 2013 (unchanged). Center acquisitions are expected to generate annual operating income of $25−$29 million.

Additionally, AmSurg provided its EPS guidance for the third quarter of 2013. The company expects EPS in the range of 51−53 cents. The current Zacks Consensus Estimate of 53 cents remains at the high end of the range.

Recommendation

Despite the uncertain economic conditions and high unemployment, we are encouraged by AmSurg’s second-quarter revenue growth of 17%. However, we are concerned with the flat same-center sales. The company reported expansion in top line on the back of growth through strong performance of the acquired centers.

We are also encouraged with the company’s new joint venture with a hospital system and expect AmSurg to go ahead with its acquisition pipeline, supported by a strong cash position. Government agencies have undertaken initiatives to curtail healthcare expenditure, thereby resulting in a shift toward ambulatory surgery centers from admission to traditional hospitals.

However, the company is encountering several challenges such as reimbursement issues, higher expenses and economic uncertainty. Currently, AmSurg retains a Zacks Rank #2 (Buy).

Other Stocks to Consider

Some of the stocks in the medical device sector, carrying a Zacks Rank #1 (Strong Buy) are HealthNet, Inc. (HNT), WellPoint Inc. (WLP) and Jazz Pharmaceuticals Plc. (JAZZ).

Read the Full Research Report on AMSG

Read the Full Research Report on WLP

Read the Full Research Report on HNT

Read the Full Research Report on JAZZ

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