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Adeptus Health (ADPT) Shares Continue to Fall: Here's Why
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Shares of Adeptus Health, Inc. (ADPT - Free Report) have been severely underperforming. This is evidenced by the fact that the stock has lost 85.7% year to date, whereas the Zacks categorized Medical Hospital industry has declined 8.7%. The company’s performance was also weaker than other players from the same industry, such as LifePoint Health, Inc. , Tenet Healthcare Corporation (THC - Free Report) and Acadia Healthcare Company, Inc. (ACHC - Free Report) that declined by 19.6%, 49.7% and 44.5%, respectively.
Why Did the Stock Underperform?
The leading patient-centered healthcare organization has been affected by tight liquidity, pressurized patients volume, high expenses, exposure to a competitive market to name a few. These negatives have taken a toll on its stock as well.
The company has been witnessing volume weakness in the non-HOPD markets due to stiff competition. It is also incurring incremental costs in relation to opening three hospitals.
Lower revenues from the company’s non-HOPD markets like Houston, San Antonio and Austin as well as its fixed cost model directly hit its bottom line.
The company is also facing problems in billing and collection efforts. This is indicated by the increase in days sales outstanding (DSO). The introduction of ICD-10 created the need to outsource the company’s billing and collections to an experienced vendor. However, the company’s DSO has been risen from 54 days in the third quarter of 2015 to 80 days in the second of 2016. As of the third quarter of this year, the DSO was 119 days. As evidenced by the rising DSO, the transition to McKesson has clearly not moved ahead as planned.
Furthermore, the company had to incur higher expenses due to the conversion of non-HOPD to an HOPD market in Denver.
Adeptus has generated negative operating cash flow in the last reported uarter in order to fund its rapid growth and is currently exploring financing options to improve its liquidity position. Recently, the company disclosed a surprise $57.5 million incremental financing to bolster its liquidity position.
Adeptus lowered its adjusted EBITDA guidance to a range of $70–$80 million from the prior range of $110–$115 million in the third quarter, which indicated difficult operating environment for the company.
Nonetheless, the company’s management team is taking initiatives to help bring about the changes necessary to restore profitability and, ultimately increase shareholder value. In this regard it has appointed Goldman Sachs to explore various financing alternatives. The company also changed its corporate governance structure by separating roles of the Chairman and the CEO to better face the challenges.
In this regard, the company recently appointed Gregory Scott – its Director since 2013 – as Chairman of the board. The company is currently looking for a suitable candidate to fill up the post of its CEO. In order to address its liquidity crunch the company is scaling back development activities until it can successfully execute a plan to improve business. The company is also focusing on completing the conversion of non-HOPD markets to HOPDs. Moreover, it is working on addressing issues with its primary third-party billing and collections company by implementing new internal and external resources to recoup its billings.
Despite the aforesaid steps, there remains a lack of visibility over the stock’s 2017 earnings performance. Hence, we do not expect to see a rebound in the stock price any time soon.
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Adeptus Health (ADPT) Shares Continue to Fall: Here's Why
Shares of Adeptus Health, Inc. (ADPT - Free Report) have been severely underperforming. This is evidenced by the fact that the stock has lost 85.7% year to date, whereas the Zacks categorized Medical Hospital industry has declined 8.7%. The company’s performance was also weaker than other players from the same industry, such as LifePoint Health, Inc. , Tenet Healthcare Corporation (THC - Free Report) and Acadia Healthcare Company, Inc. (ACHC - Free Report) that declined by 19.6%, 49.7% and 44.5%, respectively.
Why Did the Stock Underperform?
The leading patient-centered healthcare organization has been affected by tight liquidity, pressurized patients volume, high expenses, exposure to a competitive market to name a few. These negatives have taken a toll on its stock as well.
The company has been witnessing volume weakness in the non-HOPD markets due to stiff competition. It is also incurring incremental costs in relation to opening three hospitals.
Lower revenues from the company’s non-HOPD markets like Houston, San Antonio and Austin as well as its fixed cost model directly hit its bottom line.
The company is also facing problems in billing and collection efforts. This is indicated by the increase in days sales outstanding (DSO). The introduction of ICD-10 created the need to outsource the company’s billing and collections to an experienced vendor. However, the company’s DSO has been risen from 54 days in the third quarter of 2015 to 80 days in the second of 2016. As of the third quarter of this year, the DSO was 119 days. As evidenced by the rising DSO, the transition to McKesson has clearly not moved ahead as planned.
Furthermore, the company had to incur higher expenses due to the conversion of non-HOPD to an HOPD market in Denver.
Adeptus has generated negative operating cash flow in the last reported uarter in order to fund its rapid growth and is currently exploring financing options to improve its liquidity position. Recently, the company disclosed a surprise $57.5 million incremental financing to bolster its liquidity position.
Adeptus lowered its adjusted EBITDA guidance to a range of $70–$80 million from the prior range of $110–$115 million in the third quarter, which indicated difficult operating environment for the company.
Nonetheless, the company’s management team is taking initiatives to help bring about the changes necessary to restore profitability and, ultimately increase shareholder value. In this regard it has appointed Goldman Sachs to explore various financing alternatives. The company also changed its corporate governance structure by separating roles of the Chairman and the CEO to better face the challenges.
In this regard, the company recently appointed Gregory Scott – its Director since 2013 – as Chairman of the board. The company is currently looking for a suitable candidate to fill up the post of its CEO. In order to address its liquidity crunch the company is scaling back development activities until it can successfully execute a plan to improve business. The company is also focusing on completing the conversion of non-HOPD markets to HOPDs. Moreover, it is working on addressing issues with its primary third-party billing and collections company by implementing new internal and external resources to recoup its billings.
Despite the aforesaid steps, there remains a lack of visibility over the stock’s 2017 earnings performance. Hence, we do not expect to see a rebound in the stock price any time soon.
Adeptus Health carries a Zacks Rank # 5 (Strong Sell).You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>