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Why Envision Healthcare Corporation Is Collapsing Today

What happened

Shares of Envision Healthcare Corp. (NYSE: EVHC), a service provider to the healthcare industry, were down 31% on Wednesday as of 2:55 p.m. EDT. The huge plunge is a result of the company reporting disappointing earnings and sharing the news that it is reviewing strategic alternatives.

So what

Here's a review of the headline numbers from the third quarter:

  • Net revenue grew 142% to $1.99 billion. However, the eye-popping growth was largely due to last year's merger with AmSurg. This result was a hair shy of what Wall Street had expected.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) grew 52% to $233.5 million.
  • Adjusted net earnings were $89.4 million, or $0.73 per share. That was a big miss when compared to the $0.88 in adjusted earnings per share that market-watchers had projected.

Management blamed the revenue and earnings shortfalls on Hurricanes Harvey and Irma. They also stated that health-sector utilization is leveling off, after two years of steady demand increases on the back of coverage expansion.

Image source: Getty Images.

The news didn't get any better when management issued fourth-quarter guidance:

  • Revenue is expected to land between $1.88 billion and $2.02 billion.
  • Adjusted EBITDA is expected to be in a range of $182 million to $202 million.
  • Adjusted EPS is expected to land between $0.44 to $0.54.

The midpoint of these figures represents a substantial sequential decline, and compares poorly to what Wall Street had expected.

In response to its challenges, Envision's board of directors unanimously decided to initiate "a full review of a broad range of alternatives to enhance shareholder value." However, they did not release a timetable for action.

William Sanger, Envision's chairman of the board, commented:

While we have made considerable progress in building the new Envision around a set of highly differentiated physician-centric clinical solutions, the Board believes that a review at this time -- with all options on the table, including continuing to execute on our strategic plan -- is in the best interests of Envision shareholders. As the Board conducts its review of potential value-creating alternatives, we remain focused on aggressively executing our strategic plan to deliver value to Envision shareholders.

Now what

The board's decision to seek strategic alternatives likely took the markets by surprise, especially since it hasn't even been a year since the company's megamerger with AmSurg was completed. Between that decision and the company's disappointing results and guidance, it is clear that this company is not in a great spot right now. For that reason, I think investors should take a pass on this stock for the foreseeable future.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.