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Why Is HMS Holdings (HMSY) Up 4.3% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for HMS Holdings (HMSY). Shares have added about 4.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is HMS Holdings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

HMS Holdings Q2 Earnings and Revenues Top Estimates

HMS Holdings reported adjusted earnings of 34 cents per share in second-quarter 2019, which surpassed the Zacks Consensus Estimate of 26 cents by 30.8%. The bottom line also surged 36% from the year-ago quarter.

Revenues totaled $168.2 million, which beat the Zacks Consensus Estimate by 5.5%. Moreover, the top line improved 14.6% on a year-over-year basis.

Q2 Segmental Analysis by Product

Analytical Services

Revenues at this segment were $63.1 million in the second quarter, up 37.2% year over year.

Within Analytical Services, PI revenues (excluding Medicare RAC) amounted to $38.6 million, up 23.7% year over year.

PHM revenues totaled $14 million in the quarter under review, down 5.4% on a year-over-year basis.

COB
 
Revenues at the COB segment grossed $105.1 million in the second quarter, up 4.3% year over year.

Margin Analysis

Total cost of services in the reported quarter was $99.6 million, down 1.4% year over year.

Gross profit came in at $68.6 million, which surged 49.9% from the prior-year quarter figure. Gross margin was 40.8% of net revenues, up 960 bps year over year.

Selling, general and administrative expenses totaled $28 million, up 5.7% year over year. Operating income in the second quarter was $40.5 million, against operating loss of $0.8 million in the year-ago quarter.

Financial Update

Cash and cash equivalents amounted to $268.7 million, up 50.1% from the year-end 2018.

Net cash provided by operating activities for the six months ended Jun 30, 2019, came in at $78.1 million, compared with $23.7 million from the year-ago quarter.

Guidance Raised

For 2019, the company now anticipates revenues between $650 million and $660 million (up from the previously guided range of $640-$650 million). This depicts year-over-year growth in the band of 8.6-10.3%. The mid-point of $655 million is above the Zacks Consensus Estimate of $646.9 million.

Net income is expected in the band of $85-$90 million (up from the prior band of $64-$70 million), indicating growth in the range of 54.5-63.6% year over year.

Adjusted EBITDA is expected in the range of $185-$190 million (up from the previously guided range of $170-$175 million), suggesting improvement of 14-17%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, HMS Holdings has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, HMS Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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