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Will Envision Healthcare's Growth Strategies Help the Stock?

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Envision Healthcare Corp. has disclosed the status of a number of initiatives undertaken for its long-term growth. These initiatives were taken to offset headwinds such as low patient volumes, increased leverage, high operating expense and a weak operating environment.

Strategic Initiatives

The company has appointed James D. “Denny” Shelton as lead independent director, effective immediately. It expects to gain from Shelton’s rich experience. Also, for better corporate governance Envision Healthcare will amend its articles of incorporation provided for the election of directors on an annual basis. Changes to this effect will cause the directors to be appointed for a three-year term (in 2018 annual meeting), who will then be reelected every year for one year term.

Furthermore, the company plans to modify its bylaws to incorporate proxy access, which implies that a long-term share holder of the company will have the ability to nominate a limited number of director candidates. This, in turn, will lead to a better corporate governance and provide more powers to its long-term shareholder’s, thereby increasing their trust in the company.

Envision Healthcare provided an update on its pending divestiture of its medical transportation company — American Medical Response — which is under progress. The company will benefit from the recently enacted tax act, thereby leading to an increase in net proceeds from the sale to $2.1 billion from $1.9 billion as envisaged earlier.

Also, the tax reform will cause a reduction in estimated tax liability association with this divestiture transaction. The company intends to use the funds from this sale to pay off its debt, which is expected to improve its balance sheet position.

In fact, the company stands to gain from Trump’s tax reform as well, which lowers the corporate tax rate to 21% from 35%. Additionally, it expects that capital expenditures for continuing operations will be eligible for accelerated depreciation, thus allowing higher deductions in the initial years of an asset's life.

This is an important tax incentive that supports a business for purchasing new assets. Further, Envision Healthcare anticipates net interest expenses to be deductible based on thresholds specified in the law.

For fiscal 2018, the company stated that it is on track to generate $50 million of savings from operational improvements..Its operating margins for 2018 will also witness an improvement of 50 basis points from reduced overhead expenses and more efficient revenue cycle management. Envision Healthcare intends to make additional cost saves from effective labor cost management.

Moreover, it reaffirmed the company’s financial guidance for the fourth quarter of 2017, which included revenue of $1.88 billion to $2.02 billion, adjusted EBITDA of $182 million to $202 million and adjusted EPS of $0.44 to $0.54. This excludes an anticipated benefit from a reduction of net deferred tax liabilities associated with the enactment of the Tax Cuts and Jobs Act.

Will These Initiatives Assist a Bounce Back?

Envision Healthcare’s headwinds weighed on its stock price which tanked 46% in a year’s time, significantly underperforming the industry’s decline of 4%.


We believe these initiatives will be able to relieve the company and help it to address its low profitability. But we choose to remain on sidelines til the effects of these strategies are reflected in earnings numbers.

Zacks Rank and Stocks to Consider

Envision Healthcare carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the healthcare space are Centene Corp. (CNC - Free Report) , Amedisys Inc. (AMED - Free Report) and Chemed Corp. (CHE - Free Report) . While Centene sports a Zacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Amedisys surpassed the Zacks Consensus Estimate in each of the last four reported quarters, with an average positive surprise of 13.1%.

Chemed Corp. surpassed estimates in three of the last four reported quarters with an average positive surprise of 5.9%.

Centene Corp. delivered a positive surprise in each of the last four quarters with an average of 10.6%.

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