AmSurg Up on Plans to Buy Sheridan Healthcare - Analyst Blog

Shares of AmSurg Corp. AMSG spiked almost 7% to reach $45.74 on yesterday's close following the company's announcement of its foray into the huge and fast-growing fragmented physician outsourcing market through a mega $2.35 billion acquisition.

The company has entered into a definitive agreement to acquire Sheridan Healthcare, a prominent multi-specialty outsourced physician services provider, for a transaction value of $2.35 billion in cash and stock. AmSurg expects completion of this transaction in the third quarter of 2014 subject to certain customary closing conditions.

According to AmSurg, Sheridan Healthcare is currently the topmost provider of anesthesiology services and the second largest provider of children's services in the U.S. It also holds a strong position in radiology and emergency medicine services.

AmSurg remains fully optimistic about this impending acquisition which provides a golden opportunity to drive growth in its own existing markets and to create a more comprehensive development pipeline across all service lines. Furthermore, strong fundamentals and a robust financial profile will allow the combined company to carry forward its investment in new growth opportunities.

This acquisition is expected to be immediately accretive to AmSurg's adjusted earnings per share, EBITDA and cash flow, and to considerably improve the company's top- and bottom-line performances.

Post-acquisition, the combined entity with its unique business model is expected to pose a major challenge in the competitive niche by covering 38 states and establishing its hold on a total addressable market of as large as $70 billion. It is also expected to improve the company's response to emerging market trends.

We are also optimistic about the company's newly formed joint venture with a hospital system and expect AmSurg to successfully take forward its acquisition pipeline, supported by a strong cash position. Government agencies have undertaken initiatives to curtail healthcare expenditure, thereby resulting in a shift toward ambulatory surgery centers from admission to traditional hospitals. However, we are concerned with the continued sluggish same-center sales.

Currently, AmSurg retains a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked stocks that warrant a look in the similar industry are Almost Family Inc. AFAM, Amedisys Inc. AMED and RadNet, Inc. RDNT. While AFAM sports a Zacks Rank #1 (Strong Buy), AMED and RDNT carry a Zacks Rank #2 (Buy).