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AmSurg (AMSG) Q1 Earnings in Line, EPS Outlook Raised

Tennessee-based healthcare provider AmSurg Corp. AMSG reported a strong first quarter of 2016 with adjusted earnings per share (EPS), considering share-based compensation as a regular expense, of 74 cents. The earnings figure reflects a 29.8% rise from the year-ago quarter but was in line with the Zacks Consensus Estimate.

Strong revenue growth primarily drove this year-over-year improvement in earnings. Further, the adjusted EPS figure was supported by a 12% increase in the company’s diluted shares outstanding related to AmSurg’s Dec 2015 equity offering.

Including one-time items, the company reported first-quarter net earnings from continuing operations of $28.6 million or 53 cents per share, demonstrating an improvement of 52.3% or 35.9% from the year-ago quarter equivalent.

Quarter in Details

AmSurg’s net revenue in the first quarter rose 27% year over year to $724.7 million, comfortably exceeding the Zacks Consensus Estimate of $708 million. Strong same-center and same-contract revenue growth for the Ambulatory and Physician Services divisions primarily drove the top line.

In the reported quarter, net revenue from Ambulatory Services increased 8% year over year to $307.1 million with an 8.8% improvement in same-center revenues. Ambulatory Services ended the quarter with 256 centers and one surgical hospital. Ambulatory Services had six centers under its letter of intent at the end of the first quarter and one center under development, which is slated to open by the end of 2016.

Physician Services net revenue in the first quarter totaled $417.5 million, up 46% year over year on account of 10.1% growth in same contract revenues, 1.2% uptick in new contract revenues and 34.4% improvement in acquisition revenues. Same contract revenue growth of 12% in the quarter included a 7.3% increase in patient encounters, a 3% rise in net revenue per patient encounter and a 1.7% increase due to an additional operating day in the first quarter of 2016.

Adjusted operating expenses spiked 29.5% year over year to $565.9 million due to increased salaries and benefits (up 35.6% to $409.8 million), supply cost (up 10.3% to $47 million) and other operating expenses (up 18.9% to $107.7 million). These increased expenses were slightly offset by a 5.5% cut in transaction costs to $1.4 million. As a result, adjusted operating margin contracted 110 basis points to 22.8% in the quarter.

AmSurg exited the quarter with $85.9 million in cash and cash equivalents versus $106.7 million at the end of 2015. It had $345 million of borrowing capacity available under its revolving credit facility of $500 million at the end of the first quarter of 2016. Net cash flow from operating activities in the quarter was $81.8 million, down from the year-ago quarter’s figure of $98.8 million.

2016 Outlook

For 2016, AmSurg has reiterated its revenue guidance. The company continues to expect to generate revenues in the range of $3.09–$3.13 billion. The current 2016 Zacks Consensus Estimate for revenues is pegged at $3.12 billion.

However, at the bottom-line front, the company raised its outlook for 2016. AmSurg currently expects to deliver adjusted EPS (considering stock-based compensation as a one-time item) of $4.28–$4.35 against the prior guidance of $4.26–$4.34. The current 2016 Zacks Consensus Estimate for adjusted EPS is pegged at $4.14.

Further, the company expects same-center revenue growth of 4–6% for both Ambulatory and Physician Services.

Additionally, AmSurg provided its EPS guidance for the second quarter of 2016. The company expects adjusted EPS in the range of $1.06–$1.09. The current Zacks Consensus Estimate is pegged at $1.03.

Our Take

AmSurg started off 2016 on a satisfactory note, with its first-quarter revenue beating the Zacks Consensus Estimate while the EPS figure was in line with the mark. Strong growth in the fourth quarter was driven by successful execution of the company’s organic growth and acquisition strategies in both the Ambulatory and Physicians Services businesses. However, the company’s consistently weak cash balance position raise concern.

Meanwhile, we view the company’s 2016 outlook as a modest one with a raised EPS guidance and an unchanged revenue outlook.

Nevertheless, the recent initiatives by government agencies to curtail healthcare expenditures have encouraged a shift toward ambulatory surgery centers from admissions to traditional hospitals. This, in turn, should benefit home healthcare providers like AmSurg.

Zacks Rank & Key Picks

Currently, AmSurg has a Zacks Rank #3 (Hold). Better-ranked medical stocks are Baxter International Inc. BAX, SurModics, Inc. SRDX and Boston Scientific Corporation BSX. While Baxter and SurModics sport a Zacks Rank #1 (Strong Buy), Boston Scientific carries a Zacks Rank #2 (Buy).

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