On Jan 23, Zacks Investment Research downgraded Performant Financial Corp. (PFMT) by a notch to a Zacks Rank #4 (Sell).
Why the Downgrade?
Earnings estimates for Performant have failed to gain any traction owing to the regulatory challenges, intense competition and lack of any growth catalyst. Particularly, the stock has tumbled more than 16% since the beginning of this year.
Additionally, this technology-enabled recovery and related analytics service provider underperformed the one-year Nasdaq index, which posted growth of 31.1% against a negative return of 21.3% clocked by the company.
While the performance in 2013 was stable at Performant, growth is expected to be tempered by the mandate signed in Dec 2013 that requires reduction on feespaid to the guarantee agencies for rehabilitating student loans under the Federal Family Education Loan Program (FFELP) effective July 2014. FFELP was suspended in 2010. These regulatory barriers amid intense competition are likely to have adverse effects on Performant’s financials in 2014, also making investors jittery.
Earnings Review
On Nov 7, Performant reported third-quarter 2013 operating earnings per share of 34 cents. Results exceeded the year-ago quarter's earnings of 17 cents and the Zacks Consensus Estimate of 22 cents. Growth was driven by 44% increase in the top line and lower interest expenses, partially offset by 24% hike in operating expenses.
The Zacks Consensus Estimate for 2013 remained intact at 80 cents per share in the last 60 days.However,the estimate for 2014 dipped a penny to 73 cents during the same period. The estimate for 2014 implies a year-over-year decline of 9.2%.
Meanwhile, the Most Accurate estimate for Performant’s 2014 earnings stands at 65 cents a share, resulting in an Earnings ESP of -11%. Furthermore, no upward revision in estimates was witnessed for both the years.
Other Insurers Worth a Look
We prefer to avoid Performant for the time being. However, investors interested in the financial services industry may consider stocks like Rentrak Corp. (RENT), PFSweb Inc. (PFSW) and Cardtronics Inc. (CATM). All these stocks sport a Zacks Rank #1 (Strong Buy).
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