Air Methods: A Strong Sell on Weak Q3 & Estimate Revision - Analyst Blog

On Dec 17, 2014, Zacks Investment Research downgraded medical services provider Air Methods Corp (AIRM) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

The downgrade primarily reflects lackluster third-quarter 2014 earnings, lack of sequential growth in net revenue per transport and increasing collection cycle. Air Methods reported earnings of 85 cents in the third quarter, which missed the Zacks Consensus Estimate by a penny.

We note that Air Method missed the Zacks Consensus Estimate in three of the last four quarters, with an average negative surprise of 3.06%.

Revenues increased 10% from the year-ago quarter to $277.8 million and were better than the Zacks Consensus Estimate of $273 million. Meanwhile, net revenue per patient transport remained flat at $11,972. Air Medical Services revenues increased 3% to $237.6 million, while Tourism revenues surged 112% to $33.9 million.

We believe that weakness in net reimbursement per patient transport will continue to hurt profitability. However, recent price hike and strong flight volumes in October is expected to somewhat offset this trend going forward.

Owing to the present adversities, analysts remain reasonably apprehensive, as is evident from the downward estimate revisions. Over the last 60 days, the Zacks Consensus Estimate fell 7.8% (29 cents) to $4.88 per share for 2014 while the same for 2015 declined 11.9% (38 cents) to $3.19.

Stocks to Consider

While we choose to avoid Air Methods at present, better-ranked stocks include ICON Public Limited Company (ICLR), Envision Healthcare Holdings (EVHC) and HealthEquity (HQY). While ICON Public holds a Zacks Rank #1 (Strong Buy), Envision Healthcare and HealthEquity carry a Zacks Rank #2 (Buy).