AmSurg Up to Strong Buy on Sheridan Healthcare Buyout Plan

Zacks

On Jul 4, Zacks Investment Research upgraded AmSurg Corporation (AMSG) – leading operator of single-specialty practice-based ambulatory surgery centers (ASCs)– to a Zacks Rank #1 (Strong Buy).

Amid hurdles like uncertain economic conditions and high unemployment, AmSurg’s first-quarter revenues and earnings per share (EPS) squarely missed the Zacks Consensus Estimate. Nonetheless, the Sheridan Healthcare acquisition plan, paving its way into the fast-growing fragmented physician outsourcing market, is expected to be a material upside.

AmSurg’s first-quarter 2014 adjusted EPS of 53 cents increased 1.9% year over year but missed the Zacks Consensus Estimate by 2 cents. The EPS also remained at the low end of the company-provided guidance range. Likewise, revenues during the quarter scaled up 1.9% year over year to $263.1 million, but lagged the Zacks Consensus Estimate of $271.0 million.

According to AmSurg, the year-over-year top-line growth was backed by 2.4% increase in revenues per procedure, mainly attributable to six centers acquired in 2013. The company is confident about figures rising further through the remaining fiscal as Ophthalmology and Gastrointestine (GI.V) continue to perform well.

We are also encouraged by the company’s recent plan to acquire Sheridan Healthcare,a prominent multi-specialty outsourced physician service provider. According to AmSurg, successful completion of this acquisition will serve as a golden opportunity to foray into the huge and fast growing physician outsourcing market.

Furthermore, strong fundamentals and a robust financial profile will allow the combined company to make strategic investments for new growth opportunities. This acquisition is expected to be immediately accretive to AmSurg’s adjusted earnings per share, EBITDA and cash flow, while considerably improving the company’s top- and bottom-line performances.

Post-acquisition, the combined entity with its unique business model is expected to pose a major challenge in the competitive niche by covering 38 states and establishing its hold on a total addressable market as large as $70 billion. It is also expected to improve AmSurg’s response to emerging market trends.

We expect AmSurg to go ahead with its acquisition pipeline, supported by a strong cash position.

Meanwhile, the Zacks Consensus Estimate for earnings for 2014 is currently pegged at $2.47 per share, reflecting year-over-year growth of 10.65%. The expected long-term earnings growth rate for the stock is 10.9%.

Other Stocks to Consider

Other stocks worth considering in the similar sector are Amedisys Inc. (AMED), RadNet, Inc. (RDNT) and US Physical Therapy Inc. (USPH). All the three stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on AMSG
Read the Full Research Report on AMED
Read the Full Research Report on RDNT
Read the Full Research Report on USPH


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