HMS Shares Downgraded Following Q3 Report

Earlier this month, HMS Holdings Corp HMSY reported worse-than-expected third-quarter earnings and lowered its guidance. The earnings miss was attributed to delayed coordination of benefits revenue, weakness in payment integrity and integration issues with the acquisition of Eliza Corp. 

The Analyst

Cantor Fitzgerald's Steven Halper.

The Rating

Halper downgraded HMS Holdings from Overweight to Neutral and reduced the price target from $23 to $16.

The Thesis

The COB revenue issues are not concerning, but it's uncertain when payment integrity performance is going to improve, said Halper. (See Halper's track record here.) 

The shares are fairly valued, mainly due to reduced 2017 and 2018 growth assumptions, the analyst said. Cantor Fitzgerald projects 10 percent top line growth at HMS, but the company needs to improve payment integrity and execute better with Eliza to achieve the set targets, he said. 

The key risks for the company are sensitivity to government healthcare industry regulation; competition; customer retention; dependence on the company's information processing systems and networks; and the Eliza acquisition integration, Halper said. 

The Price Action

The stock traded sharply lower on Nov. 3. It fell approximately 42 percent, butmanaged to rebound 43 percent in the same session. Since the rebound, it has been in a consolidation mode, but showed weakness again Monday. It is trading around 2 percent lower Monday.