MedAssets Down to Sell - Analyst Blog

On May 13, 2014, Zacks Investment Research downgraded MedAssets, Inc. MDAS to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold).

Why the Downgrade?

MedAssets has been witnessing a negative trend in earnings estimate revision over the past one month. For 2014, three estimates moved down in the past 30 days, with no upward revision causing the Zacks Consensus Estimate to shrink 1.6% to $1.20 per share. Moreover, long-term expected earnings growth for MedAssets is pegged lower at 13.0% compared with industry growth of 18.4%.  

On April 30, 2014, MedAssets reported its 2014-first-quarter results, which lagged estimates at both fronts. Following the earnings release, shares of MedAssets have dropped 1.2% till the last closing date.

In the first quarter, adjusted earnings per share of 27 cents reflected a year-over-year drop of 28.9% and lagged the Zacks Consensus Estimate by 2 cents. Total revenues in the quarter also slipped 1.1% to $170.9 million and fell short of the Zacks Consensus Estimate of $172 million.

Revenues from both segments – Spend and Clinical Resource Management SCM and Revenue Cycle Management (RCM) – declined during the quarter on the back of lower group purchasing net administrative fees and fall in performance-related fees along with the loss of two clients in early 2013.

MedAssets also reported lower adjusted EBITDA for the first quarter, principally due to the year-over-year decline in performance-related fees. Moreover, adjusted EBITDA margin contracted during the quarter due to higher margin contribution from certain revenues last year.

Nevertheless, MedAssets maintained its 2014 financial guidance. The company expects adjusted earnings per share in the band of $1.12−$1.22. The current Zacks Consensus Estimate of $1.20 lies within the guidance range.

Total net revenue for 2014 is anticipated in the range of $700 to $714 million. The current Zacks Consensus Estimate of $718 million lies above the company's guidance range.

The evolving healthcare environment marked with significant changes in patient demographics and reimbursement is expected to pose several operational and strategic challenges for healthcare organizations like MedAssets, going forward.

Other Stocks to Consider

Some better-ranked medical services stocks include ICON Public Limited Company ICLR, BG Medicine, Inc. BGMD and Omnicare Inc. OCR. While ICON sports a Zacks Rank #1 (Strong Buy), BG Medicine and Omnicare retain a Zacks Rank #2 (Buy).