Q4 Earnings Beat at AmSurg, Poor Outlook

Zacks Equity Research

AmSurg Corp.’s (AMSG) fourth-quarter 2013 earnings per share (EPS) from continuing operations climbed 22% year over year to 60 cents, marking the company’s third consecutive quarter of double-digit growth. The EPS figure also steered ahead of the Zacks Consensus Estimate of 57 cents and exceeded the company’s guidance range of 56−58 cents. For the full year, adjusted EPS increased 13% to $2.23 and also surpassed the Zacks Consensus Estimate of $2.20. The fiscal EPS number also remained outside the 2013 guidance range of $2.19−$2.21.

Revenues during the quarter increased 17% year over year to $284.6 million beating the Zacks Consensus Estimate of $283.0 million. According to Amsurg, growth was backed by 10% increase in procedures, mainly attributable to centers acquired in 2012. Revenues for fiscal 2013 scaled up 17% year over year to $1.08 billion. Revenues per procedure increased 6% owing to growth in the number of multi-specialty centers as a percentage of center mix.

Same-center revenues during the quarter rose 2% year over year. In 2013, AmSurg acquired six centers which are expected to generate annualized operating income of $20 million. The company exited 2013 with a total of 242 operational centers.

Operating expenses increased 15.7% year over year to $188.2 million due to higher salaries and benefits (up 12.9% to $86.1 million), supply cost (up 21.5% to $42.7 million) and other operating expenses (up 15.7% to $59.4 million). However, adjusted operating margin expanded 89 basis points to 33.9% in the fourth quarter.

AmSurg exited the fiscal with $50.8 million in cash and cash equivalents versus $46.4 million at the end of 2012, and had $222.5 million available under its revolving credit facility. For the fourth quarter, net cash flow from operating activities was $83.9 million, up a substantial 58.7% from the year-ago quarter.

Outlook

AmSurg initiated its 2014 operating guidance. The company expects revenues in the range of $1.12−$1.15 billion. The current Zacks Consensus Estimate of $1.20 billion remains ahead of the range. Amsurg predicts its full-year EPS outlook within $2.45−$2.49. The current Zacks Consensus Estimate of $2.52 also exceeds the guided range.

Further, the company’s 2014 same-center revenue growth is forecasted at 1% to 2%. Net cash flow provided by operating activities, less distribution to non-controlling interests, is expected in the range of $150−$160 million in 2014. Center acquisitions are expected to generate annual operating income of $25−$29 million.

Additionally, AmSurg provided its EPS guidance for the first quarter of 2014. The company expects EPS in the range of 53−57 cents. The current Zacks Consensus Estimate of 60 cents remains ahead of the range.

Recommendation

Despite uncertain economic conditions characterized by unemployment, sequestration and increased interest expense, we are encouraged by AmSurg’s fourth-quarter double-digit revenue and EPS growth. The company reported encouraging top-line expansion owing to strong performance of the acquired centers. However, still sluggish same-center sales remain an area of concern. The bearish 2014 outlook also fails to indicate any near-term catalyst that may improve the economic scenario in the near future.

However, we are also positive on the company’s new joint ventures and expect AmSurg to progress well on its acquisition pipeline, supported by a strong cash position. Moreover, we are optimistic about the fact that government agencies have undertaken initiatives to curtail healthcare expenditure, thereby resulting in a shift toward ambulatory surgery centers from admission to traditional hospitals. Currently, AmSurg retains a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-placed stocks in the medical sector are Natus Medical Inc. (BABY), ABIOMED, Inc. (ABMD) and AngioDynamics Inc. (ANGO). While Natus Medical carries a Zacks Rank #1 (Strong Buy), both ABIOMED and AngioDynamics hold a Zacks Rank #2 (Buy).

Read the Full Research Report on ANGO
Read the Full Research Report on AMSG
Read the Full Research Report on ABMD
Read the Full Research Report on BABY


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