Research

Physician Services Earnings Preview

Ann Hynes and Michael Pruell
October 13, 2016

MIZUHO SECURITIES USA INC.  |  US EQUITY RESEARCH

Summary

We think the physician services group could meet 3Q16 consensus estimates, which should be a positive event given negative investor sentiment and the weakness in the stocks since 2Q earnings. Although there is a risk for 2016 guidance revisions as a result of Hurricane Matthew, we expect investors to overlook any reduction related to this event. We believe AMSG has the best earnings visibility going into the quarter.

Key Points

AMSG. Our 3Q:16 adjusted EPS is $1.12E versus consensus of $1.13. We estimate revenue of $771mm (+19%) versus consensus of $769mm, which assumes ASC same-center revenue growth of +2.9% (over a difficult y/y comp of +6.6%) and Sheridan same-contract revenue growth of +7.0%. We expect the pending merger with EVHC to be a focus on the earnings call.

EVHC. We expect EVHC to have an in line quarter after reporting disappointing 2Q results which included missing consensus estimates and lowering guidance. Our 3Q:16 adjusted EBITDA estimate is $180mm, toward the low-end of the implied guidance range of $179mm to $190mm (or Q3 being 25%-26% of total year adjusted EBITDA).We will reevaluate our rating and PT after 3Q results.

MD. We think MD is on track to stabilize the business following a rare earnings miss in 2Q. Our 3Q adjusted EPS estimate of $1.11 is in line with consensus of $1.11 and MD’s 3Q adjusted EPS guidance of $1.09-1.13. We expect investors will focus on same-unit neonatal intensive care unit (NICU) patient days, which declined -2.1% in 2Q16 primarily due to the difficult y/ y comparison of +3.8%. We believe the NICU patient day comp of +1.2% in 3Q16 should drive an in line quarter. We expect 4Q:16 guidance. Consensus estimates for 4Q:16 adjusted EPS is $1.13, which will likely be on the high end of 4Q guidance given 4Q is typically flat or up +0.01 sequentially at best.

TMH. Our adjusted EPS and EBITDA are $0.74 and $127.8mm versus consensus of $0.70 and $129.0mm, respectively. Our 2016E adjusted EBITDA estimate is $487mm (versus implied guidance of $487mm-$495mm). Two key areas of focus will likely be IPC physician churn and payor mix, as both showed deteriorating trends in 2Q16. Another point of interest is that this will be the first earnings call since the appointment of new President and CEO Leif Murphy.

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