AmSurg Corp.’s (AMSG) third-quarter 2013 earnings per share (EPS) from continuing operations were up 10% year over year, marking the company’s second consecutive quarter of double-digit growth. However it remained in line with the Zacks Consensus Estimate and also touched the upper end of the company’s guidance range of 51−53 cents.
Revenues during the quarter increased 19% year over year to $268.2 million, and surpassed the Zacks Consensus Estimate of $266 million. Despite ongoing headwinds like reduction in workers’ compensation reimbursement by the State of California, sequestration and increased interest expense, the growth recorded was encouraging. According to Amsurg, the growth was backed by increase in procedures and revenues per procedure from the higher percentage of multi-specialty centers in the company’s overall center mix.
Same-center revenues increased 2% year over year, partly on account of having one additional business day in the reported quarter. During the quarter, AmSurg acquired two centers, divested one and merged two, ending up with a total of 243 operational centers at the end of the quarter. Besides, there are 5 centers under letter of intent.
Operating expenses increased 19.2% year over year to $179.7 million due to higher salaries and benefits (up 17.4% to $84.9 million), supply cost (up 22.2% to $38.4 million) and other operating expenses (up 20.1% to $56.4 million). Adjusted operating margin remained flat year over year at 33.0%.
AmSurg exited the quarter with $45.5 million in cash and cash equivalents versus $46.4 million at the end of 2012, and had $209 million available under its revolving credit facility. For the third quarter, net cash flow from operating activities was $50.8 million up 58% from the year-ago quarter.
Outlook
AmSurg reiterated its 2013 revenue guidance in the range of $1.06−$1.09 billion. The current Zacks Consensus Estimate of $1.08 billion remains within the range. However, the company increased its fiscal 2013 EPS outlook. It now expects the fiscal earnings to remain within $2.19−$2.21 (earlier provided range was $2.17−$2.20). The current Zacks Consensus Estimate of $2.20 remains within the guided range.
Further, the company’s 2013 same-center revenue growth forecast was reaffirmed at nil to 1%. Net cash flow provided by operating activities, less distribution to non-controlling interests, is expected in a range of $140−$150 million in 2013 (unchanged). Center acquisitions are expected to generate annual operating income of $25−$29 million (unchanged).
Additionally, AmSurg provided its EPS guidance for the fourth quarter of 2013. The company expects EPS in the range of 56−58 cents. The current Zacks Consensus Estimate of 57 cents remains at the mid-point of the range.
Recommendation
Despite the uncertain economic conditions and high unemployment, we are encouraged by AmSurg’s third-quarter double digit revenue and EPS growth. The company reported encouraging top-line expansion owing to strong performance of the acquired centers. However, still sluggish same-center sales remain as an area of concern.
We are also positive on the company’s new joint ventures and expect AmSurg to progress well on its acquisition pipeline, supported by a strong cash position. Besides, we are optimistic about the fact that government agencies have undertaken initiatives to curtail healthcare expenditure, thereby resulting in a shift toward ambulatory surgery centers from admission to traditional hospitals.
However, the company is encountering several challenges such as reimbursement issues, higher expenses and economic uncertainty. Currently, AmSurg retains a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-performing stocks in the medical device sector are Align Technologies Inc., (ALGN), Mindray Medical International Limited (MR) and Bio-Rad Laboratories, Inc. (BIO). All these stocks carry a Zacks Rank #1 (Strong Buy).
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