On Jun 24, 2015, we issued an updated research report on Healthways Inc. HWAY, a global provider of health management solutions. The company’s first-quarter 2015 results were dismal with both the top and the bottom line falling short of the Zacks Consensus Estimate.
The company also recently announced a revision in its financial guidance for 2015. We note that Healthways has pronounced a cut in its revenue estimate for 2015 due to the emergence of three factors following the release of its first-quarter results.
Notably, Healthways anticipates lower-than-expected revenues from a significant commercial health plan contract, sluggish business development and implementation of Dr. Ornish’s Program for Reversing Heart Disease and slower-than-expected business development of its Blue Zones Project.
Consequently, the company now expects revenues in the range of $770–$785 million, lower than the earlier band of $800–$825 million. Management expects this revenue reduction to impact EBITDA by roughly $20 million at the mid-point of the revised revenue guidance range.
We believe that the sluggishness experienced by Healthways in its Blue Zones project as well as the slower implementation and sales cycles for the Ornish Reversal Program will continue to impede the company’s revenues over the next couple of quarters. The slower-than-anticipated revenue growth at its single health plan contract is also a concern.
However, Healthways has a substantial pipeline of potential contracts with new and existing customers in both domestic and international markets, which should drive growth. Also, the joint ventures with Sul America and MedAssets MDAS are expected to help the company gain greater traction in the health system and physician market.
New partnerships at Healthways, coupled with its existing contracts, are expected to drive top- and bottom-line growth in the long run.
Currently, Healthways carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the medical services industry include Cancer Genetics CGIX and INC Research Holdings INCR. Both the stocks sport a Zacks Rank #1 (strong Buy).
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