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Envision Healthcare Down More Than 50% This Year, Here's Why
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Envision Healthcare Corp. is suffering low patient volumes, increased leverage, high operating expenses and a weak operating environment.
These headwinds induced the company’s earnings miss in the third quarter. The bottom line also declined year over year.
The company’s negatives have taken a toll on its share price, tumbling 53% year to date compared with the industry’s decline of 11%.
So What’s Dragging Down the Stock?
Decline in Guidance: For 2017, the company lowered its adjusted EBIDTA guidance. The full-year guidance calls for EBIDTA of $922 million, down from the previously guided-range of $1.02-$1.04 billion. This decrease is attributable to the downward revision in same contracts and new contracts outlook in the Physician Services segment. This unfavorable sentiment around the stock raises a question on the company’s ability to perform, spreading skepticism among its investors.
Soft Physicians Services Segment: The unit generating most of the company’s revenues carries a weak outlook for 2017. An expected decline in same contract outlook and net new contract revenues will weigh on the segment’s revenues. Same contract assumptions were driven by lower-than-expected seasonal anesthesia rate increases from the first half of 2017 to the second half. Lower than expected emergency department rate increase, net volume growth and higher labor and other supportive costs will keep the segment’s earnings under pressure.
High Leverage: The company’s total debt has been on the rise for the past many years. As of Dec 31, 2016, the company had total debt of approximately $5.79 billion, up 145.6% year over year. For the first nine months, the same increased 8.4% from 2016 year-end level. The rise in leverage has consequently led to a spike in interest expenses, which increased from $17 million in 2012 to $142.4 million in 2016. The same for the first nine months of 2017 soared 77% year over year. Such high-debt levels increase the leverage risk and mounting interest costs may dent the company’s margins.
High Operating Expenses: The company’s operating expenses have been increasing over the past many years. Most alarming is the rate of rise of operating expenses, exceeding the revenue growth rate. To be specific, operating expenses escalated at an average rate of 54% from 2012 to 2016 while revenues grew at an average rate of 43.4% during the same time frame. The same trend was seen in the first nine months of 2017 with expenses skyrocketing by 183.4% and sadly, surpassing even the revenue growth of 152%. This growth in expenses has put pressure on the bottom line and is likely to persist in the coming quarters too.
Though the company has undertaken a strategic review of a broad range of alternatives to enhance shareholder value, the stock will remain dull until the results show sustained profitability.
Zacks Rank and Stocks to Consider
Envision Healthcare carries a Zacks Rank #5 (Strong Sell).
Amedisys beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 13.1%.
Chemed Corp. surpassed estimates in three of the last four quarters with an average beat of 5.9%.
Centene Corp. came up with positive surprises in each of the trailing four quarters with an average beat of 10.6%.
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It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
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Envision Healthcare Down More Than 50% This Year, Here's Why
Envision Healthcare Corp. is suffering low patient volumes, increased leverage, high operating expenses and a weak operating environment.
These headwinds induced the company’s earnings miss in the third quarter. The bottom line also declined year over year.
The company’s negatives have taken a toll on its share price, tumbling 53% year to date compared with the industry’s decline of 11%.
So What’s Dragging Down the Stock?
Decline in Guidance: For 2017, the company lowered its adjusted EBIDTA guidance. The full-year guidance calls for EBIDTA of $922 million, down from the previously guided-range of $1.02-$1.04 billion. This decrease is attributable to the downward revision in same contracts and new contracts outlook in the Physician Services segment. This unfavorable sentiment around the stock raises a question on the company’s ability to perform, spreading skepticism among its investors.
Soft Physicians Services Segment: The unit generating most of the company’s revenues carries a weak outlook for 2017. An expected decline in same contract outlook and net new contract revenues will weigh on the segment’s revenues. Same contract assumptions were driven by lower-than-expected seasonal anesthesia rate increases from the first half of 2017 to the second half. Lower than expected emergency department rate increase, net volume growth and higher labor and other supportive costs will keep the segment’s earnings under pressure.
High Leverage: The company’s total debt has been on the rise for the past many years. As of Dec 31, 2016, the company had total debt of approximately $5.79 billion, up 145.6% year over year. For the first nine months, the same increased 8.4% from 2016 year-end level. The rise in leverage has consequently led to a spike in interest expenses, which increased from $17 million in 2012 to $142.4 million in 2016. The same for the first nine months of 2017 soared 77% year over year. Such high-debt levels increase the leverage risk and mounting interest costs may dent the company’s margins.
High Operating Expenses: The company’s operating expenses have been increasing over the past many years. Most alarming is the rate of rise of operating expenses, exceeding the revenue growth rate. To be specific, operating expenses escalated at an average rate of 54% from 2012 to 2016 while revenues grew at an average rate of 43.4% during the same time frame. The same trend was seen in the first nine months of 2017 with expenses skyrocketing by 183.4% and sadly, surpassing even the revenue growth of 152%. This growth in expenses has put pressure on the bottom line and is likely to persist in the coming quarters too.
Though the company has undertaken a strategic review of a broad range of alternatives to enhance shareholder value, the stock will remain dull until the results show sustained profitability.
Zacks Rank and Stocks to Consider
Envision Healthcare carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the healthcare space are Amedisys Inc. (AMED - Free Report) , Chemed Corp. (CHE - Free Report) and Centene Corp. (CNC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Amedisys beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 13.1%.
Chemed Corp. surpassed estimates in three of the last four quarters with an average beat of 5.9%.
Centene Corp. came up with positive surprises in each of the trailing four quarters with an average beat of 10.6%.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>