HMS Holdings Corp. HMSY is well poised for growth on the back of strong Payment Integrity Solutions and Total Population Management, and solid margins. However, high debt continues to be a concern.
Shares of HMS Holdings have lost 12.6% against the industry’s growth of 9.6% in a year. Meanwhile the S&P 500 Index rallied 15.5% in the same timeframe.
The company, with a market capitalization of $2.65 billion, offers cost-containment solutions in the United States. The company also provides Coordination of Benefits (“COB”) services to the government and commercial healthcare payers. It anticipates earnings to improve 11% over the next five years. Moreover, it has delivered a positive earnings surprise of 23.3%, on average, in the trailing four quarters.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Favoring the Stock?
HMS Holdings continues to benefit from its promising and growing Payment Integrity Solutions. Payment Integrity (PI) has been gaining from greater throughput in the implementation process, expedited customer approvals for new PI edits, applied technology to simplify processes, increased coder productivity and accelerated revenue generation.
Per management, PI is anticipated to be a significant contributor to the Analytical Services wing in 2019.
Apart from PI solutions, Total Population Management (TPM) comes under HMS Holdings’ unique suite of Analytical Services. The company has been gaining traction from TPM for a while now that has been contributing significantly to its top line.
Product-yield enhancements and process improvements are consistently bolstering HMS Holdings’ margins and profitability. The company has been diligently managing operating expenses and broadening the use of technology tools, such as robotic process automation and machine learning.
With these initiatives, the company has been exhibiting strong margins for the last few years and the momentum is expected to continue in the near term.
What’s Deterring the Stock?
High debt can adversely impact the company’s financial condition as well as business operations. In fact, as of Sep 30, 2018, the outstanding principal balance under HMS Holdings’ Credit Agreement was $240 million.
Which Way Are Estimates Headed?
For 2019, the Zacks Consensus Estimate for revenues is pegged at $634.2 million, indicating an improvement of 6% from the figure reported in the year-ago period. The same for earnings stands at $1.34 per share, suggesting growth of 28.9% from the year-ago quarter’s reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space are Conmed Corporation CNMD, West Pharmaceutical Services, Inc. WST and Edwards Lifesciences Corporation EW, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conmed has a long-term earnings growth rate of 17%.
West Pharmaceutical has a long-term earnings growth rate of 14%.
Edwards Lifesciences has a long-term earnings growth rate of 14.8%.
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