Envision Q4 Outlook Disappoints, But All Hope Is Not Lost

Investors tend to lose confidence in a company's outlook after a stock plunges 30 percent in one day, but that shouldn't be the case when it comes to Envision Healthcare Corporation EVHC, at least according to analysts at Canaccord Genuity.

The firm's Richard Close maintains a Buy rating on Envision Healthcare's stock with an unchanged $68 price target (under review) despite a poor third-quarter earnings report and disappointing fourth-quarter guidance.

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Envision Healthcare's third-quarter miss was "expected" due to the negative impact of Hurricanes Harvey and Irma but the fourth-quarter guidance was "alarming," the analyst wrote. The company's fourth-quarter EBITDA guidance implies ongoing deterioration in ER volumes, flat anesthesia rates and a higher than expected new contract start-up expense. Accordingly, if the EBITDA guidance becomes the "appropriate starting point" heading into 2018 then at that point it would be "challenging" to continue recommending owning the stock.

But in the meantime, Envision Healthcare remains the market leader and should be able to "maneuver" through the challenging environment and generate shareholder returns over the longer term, Close also wrote. Nevertheless, further declines in the stock in the near term would be justified if investors left Wednesday morning's conference call unsatisfied.

Finally, investors should be encouraged that the company's management team understands the urgency of reviewing any and every strategic alternative but no specific details are expected to be announced soon.