Healthcare Services Group Downgraded on Weak Q2 Results - Analyst Blog

On Sep 2, Zacks Investment Research downgraded Healthcare Services Group Inc. (HCSG) to a Zacks Rank #4 (Sell).

Why the Downgrade?

Healthcare Services Group has witnessed downward earnings revision estimates following its weak second-quarter 2014 results. Moreover, this business service provider delivered negative earnings surprises in two of last four quarters and posted in-line results in the other two. The average four-quarter miss was 35.5%.

Healthcare Services Group delivered operating profit of 20 cents per share in the second quarter. The bottom line lagged the Zacks Consensus Estimate by a couple of cents. The top line also missed the Zacks Consensus Estimate by 1.5%. Nonetheless, both counts fared well year over year.

The quarter witnessed increasing expenses. Cost of services provided increased 17%, and selling, general and administrative expenses rose 14%. Direct costs increased approximately 50 basis points (bps) or 60 bps from the historical target of 86%. The increase was largely due to start-up costs and delays in some staffing and labor-related changes. The company expects to maintain direct cost under 86%.

Healthcare Services Group exited the quarter with cash and cash equivalents of $57.3 million, down 10.7% from fiscal 2013 end.

A soft second quarter performance prompted the decline in the Zacks Consensus Estimate for 2014 and 2015 in the last 60 days. It decreased 6.6% to 85 cents in 2014 as all 4 estimates moved down while the same was lowered by 1.9% to $1.02 for 2015 as 2 of 4 estimates moved south.

Other Stocks to Consider

Better-ranked business service providers include Avis Budget Group, Inc. (CAR), WNS (Holdings) Ltd. (WNS) and Cardtronics Inc. (CATM). While Avis Budget and WNS Holdings sport a Zacks Rank #1 (Strong Buy), Cardtronics carries a Zacks Rank #2 (Buy).

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HEALTHCARE SERV (HCSG): Free Stock Analysis Report
 
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