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AmSurg Retains Neutral Rec

Zacks Equity Research

On Jan 2, 2014, we reiterated our Neutral recommendation on AmSurg Corporation (AMSG), a major operator of single-specialty practice-based ambulatory surgery centers (ASCs). While we are optimistic about the company’s double-digit sales growth in the past several quarters owing to new centers and improved same-center sales, our concerns linger around challenges like reimbursement issues and economic uncertainty. The stock currently carries a Zacks Rank #3 (Hold).

Why at Neutral?

AmSurg’s third-quarter earnings per share (EPS) of 53 centswere up 10% year over year, marking the company’s second consecutive quarter of double-digit growth. However, earnings were on par with the Zacks Consensus Estimate and also touched the upper end of the company’s guidance range of $0.51−$0.53. Revenues increased 19% to $268.2 million beatingthe Zacks Consensus Estimate of $266 million.

AmSurg has made satisfactory progress with several quarters of double-digit sales growth. Even amid uncertain economic conditions and high unemployment, we are encouraged by AmSurg’s third-quarter revenue growth of 19%. 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 newly formed joint venture with a hospital system and expect AmSurg to advance on its acquisition pipeline, supported by a strong cash position. Government agencies have undertaken initiatives to curtail healthcare expenditure, thereby inducing a shift toward ambulatory surgery centers from admission to traditional hospitals.

However, we are concerned with the decline in same-center sales after seven successive quarters of improvements. Moreover, AmSurg is encountering several challenges in the form of reimbursement issues and economic uncertainty. The full impact of sequestration on AmSurg’s operations is uncertain, but if action is not taken immediately, the Budget Control Act (BCA)-mandated spending reductions will translate into greater spending reductions for AmSurg.

If sequestration continues to be implemented as currently structured, the company estimates spending reductions to cut 2013 revenues and earnings by $5.0 million and $0.05 a share, respectively.

Other Stocks to Consider

While we prefer to remain on the sidelines regarding AmSurg at present, some better-ranked medical device stocks are Given Imaging (GIVN), Addus HomeCare Corp. (ADUS) and HEALTHSOUTH Corp. (HLS). While Given Imaging and Addus HomeCare sport a Zacks Rank #1 (Strong Buy), HEALTHSOUTH carries a Zacks Rank #2 (Buy).

Read the Full Research Report on AMSG
Read the Full Research Report on GIVN
Read the Full Research Report on HLS
Read the Full Research Report on ADUS

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