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Analyst Blog

On Mar 7, 2013, we retained Healthways (HWAY - Analyst Report) at Neutral after the company missed Zacks Consensus Estimate for earnings while reporting in line revenues for fourth quarter 2012. Healthways is still recovering from the loss of the Cigna contract.

Why the Retention?

Healthways released its results for the fourth quarter on Feb 7. The company posted adjusted earnings per share of 5 cents per share, missing the Zacks Consensus Estimate by a penny. Revenues in the reported quarter dropped 2.7% year over year to $175 million, in line with the Zacks Consensus Estimate.

Over the past 60 days, the Zacks Consensus Estimate for 2013 has dropped by 5 cents to 30 cents. For 2014, the Zacks Consensus Estimate has declined by 6 cents to 58 cents during the same timeframe.

For 2013, Healthways continues to expect sales in a band of $710 million and $750 million, up 5% to 11% year over year. HWAY expects higher revenues for 2013 despite a drop of $80 million from the end of the Cigna and one other contract. Healthways forecasts higher sales in the second half of 2013 as fresh contracts inked in 2012 will take 6 months to 24 months to take off.

Healthways guided to earnings per share of about 25 cents to 35 cents for 2013. Loss per share is expected to be 15 cents for the first quarter of 2013.

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. 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 over 15,000 centers across the U.S. and caters to over nine million eligible enrollees. Healthways competes with Express Scripts Holding Company (ESRX - Analyst Report) among others.

Other Stocks to Consider

We currently have a Zacks Rank #3 (Hold) on Healthways. We are more positive about Air Methods Corp. (AIRM - Snapshot Report) and Covance Inc. (CVD - Analyst Report), which carry a Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy), respectively, and are expected to do well.

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