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Why Is HMS Holdings (HMSY) Down 1.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for HMS Holdings (HMSY - Free Report) . Shares have lost about 1.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HMS Holdings due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

HMS Holdings Beats on Q4 Earnings on Strength in Analytical Services

HMS Holdings reported adjusted earnings of 31 cents per share in fourth-quarter 2018, which surpassed the Zacks Consensus Estimate of 25 cents. In the year-ago quarter, the company’s earnings came in at 24 cents per share.

Revenues totaled $155.8 million, which marginally missed the Zacks Consensus Estimate of $156 million. However, the top line increased 4.9% on a year-over-year basis.

2018 at a Glance

Net revenues in 2018 amounted to $598.3 million, up 14.8% on a year-over-year basis.

Analyzing the segments by market, 2018 Commercial revenues were $323.2 million (54% of net revenues). State government revenues summed $233.9 million (39.1%).  Federal and Other revenues totaled $41.2 million (12.7%).

Analyzing the segments by product, Coordination of Benefits (COB) revenues in 2018 were $397.1 million (66.4%). Analytical Services revenues summed $201.2 million (33.6%).

Q4 Segmental Analysis by Product

Analytical Services

Revenues at this segment were $56.9 million in the fourth quarter, up 32.9% year over year.

Within Analytical Services, PI revenues (excluding Medicare RAC) amounted to $35.5 million, up 32% year over year. Medicare RAC revenues were $5.4 million, which skyrocketed 170% year over year.

TPM revenues totaled $16 million in the quarter under review, mirroring a 15.1% improvement on a year-over-year basis.

COB

Revenues at the COB segment grossed $98.9 million in the fourth quarter, down 6.4% year over year.

Q4 Segmental Analysis by Market

Commercial revenues in the fourth quarter were $84.2 million, reflecting 9.1% growth on a year-over-year basis.

State government revenues amounted to $61.2 million, which decreased 4.7% year over year.

Federal and Other revenues totaled $10.4 million in the quarter, up 46.5% year over year.

Margin Analysis

Total cost of services in the reported quarter was $101.2 million, up 4.4% year over year.

Adjusted gross profit came in at $54.5 million, up 5.9% from the prior-year quarter figure. Adjusted gross margin was 35% of net revenues, up 30 basis points (bps) year over year.

Selling, general and administrative expenses totaled $26.7 million, down 17% year over year. Operating income in the fourth quarter was $27.8 million, up 44.5% on a year-over-year basis. Operating margin in the quarter was 17.9% of net revenues, up 490 bps.

Guidance

For 2019, the company expects revenues between $640 million and $650 million. This depicts year-over-year growth in the band of 8.4-10.2%. The mid-point of $645 million is above the Zacks Consensus Estimate of $636.8 million.

Net income is expected in the band of $64-$70 million, mirroring 27.2-39.2% growth year over year.

Adjusted EBITDA is expected in the range of $170-$175 million, reflecting growth of 9-12.2%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -35.09% due to these changes.

VGM Scores

At this time, HMS Holdings has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HMS Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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