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AmSurg Beats, Guides Higher

Zacks Equity Research

AmSurg Corp. (AMSG) reported EPS of 50 cents in the first quarter of fiscal 2012, up 35% year over year, surpassing the Zacks Consensus Estimate by a couple of cents. Revenues during the quarter increased 30% year over year to $230.2 million and exceeded the Zacks Consensus Estimate of $219 million.

The upside in revenues during the quarter was primarily attributable to a 5% rise in same-center revenues combined with the addition of 27 centers (26 acquired and 1 de novo) in fiscal 2011. Further, the company also added 2 additional centers in the reported quarter, one of which was combined with an existing center. The significant increase in same-center revenues represented the fourth consecutive quarter of increase and the best same-center performance since 2007.

Operating expenses increased 31.7% year over year to $152.1 million due to higher salaries and benefits (up 31.1% to $72.4 million), supply cost (up 43.3% to $32.2 million) and other operating expenses (up 25.5% to $47.4 million). As a result, operating margin declined 90 basis points to 34.1% during the quarter.

AmSurg exited the quarter with $44.3 million in cash and cash equivalents versus $40.7 million at the end of fiscal 2011, and had $107.5 million available under its revolving credit facility. For the first quarter, net cash flows from operating activities were $69.1 million compared with $51.3 million in the year-ago quarter. In addition, the board of directors of AmSurg renewed its $40 million stock repurchase authorization through November 1, 2013.

Outlook

On the back of solid first quarter performance, AmSurg increased its guidance for fiscal 2012.

The company now expects adjusted EPS in the range of $1.97−$2.01 (earlier range was $1.95−$1.99, the current Zacks Consensus Estimate is $1.98) on revenues of $905−$925 million ($900−$920 million and the Zacks Consensus Estimate is $911 million) for 2012. The company also expects 1%−3% growth in its same-center revenue (0%−2%) in 2012. Net cash flow provided by operating activities, less distribution to non-controlling interests is expected to be in a range of $115 million to $120 million for 2012 (unchanged). 

Additionally, AmSurg also provided its EPS guidance for the second quarter of fiscal 2012. The company expects EPS in the range of 49−51 cents. The current Zacks Consensus Estimate of 49 cents is at the lower end of the company’s guidance. 

Based on the solid first quarter results, AmSurg expect to report double-digit revenue and EPS growth in fiscal 2012 for the first time since 2008. This expectation was backed by the company’s improved same-center revenues in the reported quarter and higher-than-expected acquisitions completed in 2011.

Recommendation

We are encouraged by AmSurg’s strong first quarter result and expect the company to benefit over the long term from favorable industry dynamics. For the past few years, government programs, private insurance companies and managed care organizations have implemented various cost-cutting measures to limit healthcare expenditure. Demand for lower-risk, high-volume surgical procedures performed by ASCs continue to grow, consistent with the demographics of an aging US population. Government agencies have been undertaking initiatives to curtail healthcare expenditure resulting in a shift toward ASCs from traditional hospitals.

Over the longer term, we have a ‘Neutral’ recommendation on the stock.

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