Healthways: A Strong Buy on Solid Q2, Estimate Revision

On Aug 16, Zacks Investment Research upgraded Healthways, Inc. HWAY to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The upgrade primarily came on the back of strong second-quarter 2016 results announced last week. Adjusted earnings of 54 cents per share outpaced the Zacks Consensus Estimate of 1 cent a share by a stellar 53 cents. Revenues although missed our estimate, surged 10.2% year over year to $125 million. This was mainly driven by a remarkable performance by the network solutions business. Moreover, the company's expanding customer base continues to remain as a key growth catalyst.

Following such a solid performance, for the third quarter of 2016, over the last seven days, three out of six analysts covering the stocks have made upward estimate revision versus no movement in the opposite direction. The magnitude of estimate revisions has also remained significant in this period. The quarter's earnings estimate shot up a huge 150% to 35 cents per share.

HEALTHWAYS INC Price and Consensus

 

HEALTHWAYS INC Price and Consensus | HEALTHWAYS INC Quote

Additionally for full-year 2016, two out of five analysts covering the stocks, raised their estimates (with no downward revision) over the last seven days. The Zacks Consensus Estimate has surged 163% to 84 cents in this period.

Management has withdrawn its previously issued financial guidance for 2016 due to the recent divestiture of its business unit to ShareCare.

Management is highly optimistic about this divesture which is a part of the company's strategy to better align its core business operations. Going ahead, it has plans to focus exclusively on three business units within the network solutions namely, SilverSneakers, Prime and Physical Medicine. The Medicare Advantage Plan is also expected to perform well under the Medicare star rating system.

We note that Healthways' unique scalable business, increasing adoption of programs like SilverSneakers, acute to post-acute Care Transitions Solution, the Dr. Ornish's Program, partnerships and a significant reduction in leverage ratio are key positives.

Additionally, joint ventures and partnerships with the likes of Gallup, Blue Jones LLC and Dr. Dean Ornish have been key growth catalysts for the company over the years.

Other Stocks to Consider

One may also consider other favorably ranked stocks like IDEXX Laboratories IDXX, CryoLife CRY and Natus Medical BABY in the same space. All the three stocks sport a Zacks Rank #1 (Strong Buy).

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