We reiterate our Neutral rating on Healthways Inc. (HWAY). Its second-quarter fiscal 2011 earnings of 17 cents a share missed the Zacks Consensus Estimate by a penny.
The Healthways model encourages people to make favorable lifestyle changes that lead to enhanced well-being, reduced healthcare costs, improved performance and economic value for customers. The company has invested in technology platforms that provide scalable support with large populations. It has tie-ups with 80% of U.S. health plans and counts 39.7 million lives in its customer base.
Due to its unique scalable business model, Healthways shares present a compelling, long-term investment opportunity although it may face challenges in the short term. Healthways is the leader in a strategically critical and rapidly evolving part of the health care services market. Its fitness program (SilverSneakers) for seniors is available at centers across the U.S. Healthways competes with Express Scrips (ESRX) among others.
Growth in the U.S. is expected to slow down, and total billable lives may stagnate a bit, which will be partly offset by cross-sell opportunities. Also, on the negative side, Healthways considers itself to be a “global well-being company” but overseas contracts wins have been few. Moreover, cash flow is modest and will be utilized to pare debt.
Healthways, on August 24, 2011, signed a definitive agreement to acquire Navvis & Company, a prominent provider of strategic consulting and change management services for health care systems in the U.S. The combined entity will provide a range of services that enhance systemic ability to improve universal health by keeping people healthy, mitigating lifestyle risks and optimizing care for patients with chronic sickness. The consideration amount is $28.7 million in cash and stock.
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