AmSurg Upgraded to Outperform

Recently, we upgraded AmSurg Corporation (AMSG - Analyst Report) to Outperform with a target price of $25.00.

AmSurg reported EPS of 41 cents in the second quarter of fiscal 2011, in line with both the Zacks Consensus Estimate and the year-ago quarter earnings.

After a sluggish fiscal 2010, mainly impacted by reimbursement issues, higher interest expenses and tax rate, AmSurg reported revenues of $188.7 million, up 7.4% from $175.7 million reported in the year-ago period.

The upside was primarily attributable to a 7% year-over-year growth in total procedures, mainly arising from the opening of new centers since 2010 (208 at the end of the second quarter of 2011 versus 197 in the year-ago quarter). After a few struggling quarters since fiscal 2009, the company reported an upside in same-center revenues during the quarter (up 1% year over year).

Demand for lower risk, high volume surgical procedures performed by ASCs continue to grow, consistent with the demographics of an aging US population. Earlier in April this year, the company decided to acquire National Surgical Care (NSC), which operates 16 multi-specialty centers, and 2 gastroenterology centers and earned consolidated revenues of $124.5 million. Meanwhile, we are encouraged by the company’s revised same-center growth expectations to an increase of 0–1% based on its improved results in the second quarter of fiscal 2011.

Moreover, with strong cash balance and extended revolving credit facility, AmSurg is well positioned to pursue further acquisitions, which will boost its top line going forward. The company is even looking for potential large-chain acquisitions.

We expect AmSurg to benefit over the long term from favorable industry dynamics. For the past few years, government programs, private insurance companies and managed care organizations have implemented various cost-cutting measures to limit healthcare expenditures. Ambulatory surgery is generally less expensive than hospital-based surgery due to lower facility development costs, more efficient staffing and space utilization.

Presently, AmSurg holds a Zacks #2 rank (short-term Buy rating).

Read the full analyst report on AMSG