Here's Why You Should Retain HMS Holdings (HMSY) Stock For Now
Zacks Investment Research | Sep 29, 2019 09:02PM ET
HMS Holdings Corp. (NASDAQ:HMSY) is well poised for growth on growing Payment Integrity (PI) solutions and Total Population Management (TPM), and strong margins. However, intense competition in the cost-containment space remains concerning.
The stock currently carries a Zacks Rank #3 (Hold).
Price Performance
Shares of HMS Holdings have gained 23.5%, outperforming the industry ’s growth of 13.4% on a year-to-date basis. The stock also outpaced the S&P 500 Index’s rally of 16.8%.
What’s Deterring the Stock?
The U.S. healthcare insurance benefit cost-containment industry offers cost containment services directly and indirectly (through subcontracting). Competition is therefore robust in this dynamic industry as customers have many alternatives available. HMS Holdings, therefore, is exposed to stiff competition.
What’s Favoring the Stock?
The company continues to benefit from promising and growing PI solutions. PI has been benefiting from greater throughput in the implementation process, expedited customer approvals for new PI edits, applied technology to simplify processes, increased coder productivity and accelerated revenue generation.
Per management, PI is anticipated to be a significant contributor to the Analytical Services wing in 2019.
Apart from PI solutions, TPM comes under HMS Holdings’ unique suite of Analytical Services. The company has been gaining traction from TPM for a significant period and it has been contributing significantly to the top line.
Product yield enhancements and process improvements are consistently bolstering HMS Holdings’ margins and profitability. The company has been diligently managing operating expenses and broadening the use of technology tools such as robotic process automation and machine learning.
Based on, HMS Holdings exhibited strong margins in the last few years. The momentum is expected to continue in the near term.
An upbeat 2019 outlook also instills optimism in the stock. For 2019, the company now anticipates revenues between $650 million and $660 million (up from the previously mentioned $640-$650 million), suggesting year-over-year growth of 8.6-10.3%.
Net income is expected to be $85-$90 million (up from the prior $64-$70 million), indicating an improvement of 54.5-63.6% year over year. Adjusted EBITDA is expected to be $185-$190 million (up from the previously stated $170-$175 million), suggesting an improvement of 14-17%.
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Which Way Are Estimates Headed?
For 2019, the Zacks Consensus Estimate for revenues is pegged at $643.6 million, indicating an improvement of 7.6% from the year-ago period. The same for earnings stands at $1.30 per share, suggesting growth of 25% from the year-ago reported figure.
Key Picks
Some better-ranked stocks from the broader medical space are Masimo Corporation (NASDAQ:MASI) , Amedisys, Inc. (NASDAQ:AMED) and CONMED Corporation (NASDAQ:CNMD) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
Masimo has a long-term earnings growth rate of 23.9%.
Amedisys has a long-term earnings growth rate of 16.3%.
CONMED has a long-term earnings growth rate of 14.9%.
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