We reiterate our Neutral rating for Healthways (HWAY). The company reported first-quarter 2012 adjusted loss per share of 8 cents, falling short of the Zacks Consensus Estimate of breakeven earnings per share and lower than the year-ago earnings of 12 cents per share.
Healthways sank into a loss in the quarter on account of negative factors such as loss of revenues from the CIGNA (CI) contract, delay in implementation of the Caisse Nationale d’Assurance Maladie des Travailleurs Salaries (“CNAMTS”) contract and the timing of accounting for productivity-linked contracts. Net loss amounted to $2.7 million (8 cents per share) in the reported quarter compared with a profit of $4.1 million (12 cents per share) in the year-ago quarter.
Revenues came in at $165.2 million in the first quarter, up 1.4% year over year, beating the Zacks Consensus Estimate of $154 million. Upon exclusion of the Cigna contract, revenue growth was 13% year over year.
The Healthways model encourages people to make favorable lifestyle changes that lead to enhanced well-being, reduced healthcare costs, improved performance and economic value for customers. The company has invested in technology platforms that provide scalable support with large populations.
Due to its unique scalable business model, Healthways shares present a compelling, long-term investment opportunity although it may face many challenges in the short term. Healthways is the leader in a strategically critical and rapidly evolving part of the health care services market. Its fitness program (SilverSneakers) for seniors is available at centers across the U.S. Healthways competes with Express Scrips (ESRX) among others.
Growth in the U.S. is expected to slow down, and total billable lives may stagnate a bit, which will be partly offset by cross-sell opportunities. Also, on the negative side, Healthways considers itself to be a world-wide well-being company but overseas contract wins have been few. Moreover, cash flow is modest and will be utilized to pare debt.
The stock retains a Zacks #3 Rank, which translates into a short-term “Hold” recommendation.
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