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Bull of the Day: Healthways Inc. (HWAY)

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As the American population gets older, the demand for medical services has increased and is expected to continue to increase for the foreseeable future.  One such company that provides support programs, and disease management is strategically positioned to capture a large portion of this growing population.  That company, Healthways Inc. (HWAY), is the Zacks Bull of the Day.

This Zacks Rank #1 (Strong Buy)  company is the leading and largest provider of specialized, comprehensive Health and Care Support programs and services, including disease management and care enhancement services, to health plans, hospitals and government, in addition to outcomes-driven wellness programs to health plans and employers, in states, the District of Columbia, Puerto Rico and Guam. Healthways helps people lead healthier lives while reducing overall healthcare costs. As The Health/Care Trust Channel, Healthways provides people the support they need when they need it to enable them to make better choices and live healthier lives.

Recent Earnings Results

Healthways reported Q2 16 results last week, and they destroyed the Zacks Consensus Earnings estimate, and posted a +5300% positive earnings surprise.  Specifically, the company posted year over year gains in revenue growth from operations +10.2%, net income from continuing operations +85.2%, and operating income +10.3%. 

Management’s Take

According to CEO Donato Tramuto, “We completed the sale of our Total Population Health Services (TPHS) business to Sharecare as expected on July 31st. Our second-quarter operating results provide a much clearer picture of the strength of the Company’s Network Solutions business.  Additionally, we have good visibility to consistent quarterly performance for the rest of this year and, as previously stated, we expect the Company’s financial profile by the end of 2016 to include annualized revenue greater than $500 million with EBITDA margins in excess of 20%.”

Price and Earnings Consensus Graph

As you can see in the graph below, the company’s stock price and future earnings estimates have leaped upwards after their earnings report last week.

HEALTHWAYS INC Price and Consensus


Increasing Estimates

Due to their strong Q2 performance, and elevated future expectations, earnings estimates have jumped up over the past 7 days for Q3 16, Q4 16, FY 16, and FY 17; Q3 16 rose from $0.13 to $0.35, Q4 16 improved from $0.23 to $0.41, FY 16 jumped up from $0.29 to $0.84, and FY 17 more than doubled from $0.64 to $1.38. 

Bottom Line

Last Friday Oppenheimer upgraded Healthways (after the company’s investor day) from Perform to Outperform, and gave a target price of $27.  The upgrade was due to Healtway’s Network solutions segment that is now considered more lean, and better focused on senior health offerings. 

It is evident that the company’s divesture of other segments will allow management to concentrate on building their core SilverSneakers brand, and achieve their goal of their EBITDA margins to be in excess of 20% in 2017. 

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