AmSurg Reports Balanced 4Q

AmSurg Corp. ( AMSG - Analyst Report ) reported earnings per share (“EPS”) from continuing operations of 49 cents in the fourth quarter of 2012, up 6.5% compared with the year-ago quarter’s adjusted EPS of 46 cents. However, the reported EPS missed the Zacks Consensus Estimate by 2 cents and remained within the guidance range of 48−51 cents. Notably, the fourth-quarter EPS included a negative impact of a penny from Hurricane Sandy. Fiscal 2012 EPS from continued operations were $1.98, showing annualized growth of 19%. However, it missed the Zacks Consensus Estimate of $2.01.

Revenues during the quarter increased 10% year over year to $244.2 million. Revenues for fiscal 2012 increased 19% to $928.5 million, comfortably beating the Zacks Consensus Estimate of $924 million.

The significant upside in revenues was primarily attributable to a 3% rise in same-center revenues combined with an increase in the number of operating centers to 240 at the end of fourth quarter 2012 (from year-ago 224 centers). Further, the company had two additional centers under letter of intent at the end of 2012.

Operating expenses increased 10.1% year over year to $163.8 million due to higher salaries and benefits (up 11.8% to $76.6 million), supply cost (up 14.0% to $35.5 million) and other operating expenses (up 5.1% to $51.7 million). Operating margin, however, expanded 20 basis points to 32.9% during the quarter.

AmSurg exited fiscal 2012 with $46.4 million in cash and cash equivalents versus $40.7 million at the end of 2011, and had $195 million available under its revolving credit facility. For the fourth quarter, net cash flows from operating activities were $72.5 million compared with $67.8 million in the year-ago quarter.

Outlook

AmSurg provided its 2013 revenue guidance in the range of $1.06−$1.09 billion, just above of the current Zacks Consensus Estimate of $1.05 billion. The company also expects the EPS outlook for 2013 to remain within $2.18−$2.23 (the current Zacks Consensus Estimate is $2.24).

Further, the company’s 2013 same-center revenue growth forecast is pegged at nil to 2%. Net cash flow provided by operating activities, less distribution to non-controlling interests, is expected in a range of $140−$150 million in 2013.

Additionally, AmSurg provided its EPS guidance for the first quarter of 2013. The company expects EPS in the range of 50−52 cents. The current Zacks Consensus Estimate of 56 cents remains beyond the range.

Recommendation

We are encouraged by AmSurg’s impressive fourth-quarter revenue growth with improvement in same-center sales in successive quarters even amid uncertain economic conditions and high unemployment. The company reported expansion in top line on the back of growth in total procedures, mainly with the opening of new centers and solid same–center performances. During the reported quarter, the company acquired 14 centers and had 2 centers under a letter of intent.

We expect AmSurg to go ahead with its acquisition pipeline, supported by a strong cash position. Government agencies have undertaken initiatives to curtail healthcare expenditure, thereby resulting in a shift toward ambulatory surgery centers from admission to traditional hospitals.

However, the company is encountering several challenges such as reimbursement issues, higher expenses and economic uncertainty. Collectively these result in deferring elective procedures with a decline in doctor visits by patients, and thereby decreasing surgical volume. This also mounts pressure on margins. Currently, AmSurg retains a Zacks Rank #4 (Sell).

Other Stocks to Consider

Amsurg’s performance has not been so encouraging. However, other stocks in the medical device sector, carrying a Zacks Rank #1(Strong Buy), like Medical Action Industries Inc. ( MDCI - Snapshot Report ) , Given Imaging Ltd. ( GIVN ) and Cyberonics Inc. ( CYBX - Analyst Report ) appear impressive.