Healthways (HWAY) Plunges on Low Earnings, Guidance

Joel Anderson  |

Shares in health and well-being company Healthways Inc. (HWAY) plunged Friday following the release of their earnings report after market close on Thursday. The company’s stock was off almost 30 percent, capping a six week run dating back to September 11 during which shares have lost over 45 percent of their value.

Earnings Disappoint Everyone but the Shorts

Healthways reported earnings of $1.8 million or $0.05 a share for the recently-ended quarter, representing a 64 percent decline year-over-year from the $5 million or $0.15 a share in the same period in 2012. It was also well behind FactSet’s reported analyst expectations of $0.12 a share. Revenue remained flat at $166.6 million but fell well short of the analyst-expected $182.6 million for the quarter.

"The rapid movement in 2012 and early 2013 toward value-based models of care has slowed as both payers and providers confront the magnitude and complexity of the change required across their enterprises for operating success," said CEO Ben Leedle Jr. "Our previous expectations reflected the momentum we experienced in signing six health system contracts and building an active pipeline of new potential health system customers, but did not incorporate the impact of the slowdown."

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Reduced Guidance

Also contributing to the dramatic sell-off on Friday morning was the reduced guidance the company issued. Healthways now expects a per-share loss of $0.10-$0.04 for 2013 on revenues of $665-$675 million. This comes in way behind the consensus view of $0.21 per share on revenue of $715.7 million.

Even with the sell-off, Healthways features a P/E ratio of nearly 685 and a debt to equity ratio approaching 1. Concerns over the company’s business model appear to be contributing to a new valuation coming from the Street. Meanwhile, Healthways' float short has reached 17.81 percent of equity.

Optimism from CEO

Leedle, though, still sees positive news on the horizon, citing ongoing negotiations with two major clients about expanding services and two new Blue Zone projects with Fort Worth, TX and with HMSA in Hawaii during his earnings call.

“In closing, we do not disregard the short-term disappointment that our revised financial outlook for 2013 creates for our colleagues and stockholders,” he finished the call saying. “Our path to profitable growth has not been smooth since the fourth quarter of 2010, when we began to outline for you the opportunities we saw in the emerging transition to value-based reimbursement. However, it is undeniable that Healthways has made tremendous progress since that time and that our market positioning today is stronger than ever with regard to the long-term growth opportunity that this transformational change in the healthcare industry represents.”

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