HMS Holdings (HMSY) Down 16% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for HMS Holdings (HMSY). Shares have lost about 16% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HMS Holdings due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

HMS Holdings Q4 Earnings and Revenues Miss Estimates

HMS Holdings Corp. reported adjusted earnings per share of 27 cents in fourth-quarter 2019, which lagged the Zacks Consensus Estimate of 31 cents by 12.9%. Further, the bottom line declined 12.9% from the year-ago quarter.

Revenues of $163.4 million missed the Zacks Consensus Estimate by 4.4%. However, the top line improved 4.9% on a year-over-year basis.

2019 at a Glance

In 2019, the company reported revenues worth $626.4 million, which improved 4.7% from the previous year.

Adjusted EPS for the year was $1.12, up 7.7% from the previous year.

Q4 Segmental Analysis by Product

Analytical Services

Revenues at this segment were $65 million in the fourth quarter, up 14.2% year over year.

Within Analytical Services, PI revenues (excluding Medicare RAC) amounted to $48.4 million, up 18.3% year over year.

PHM revenues totaled $16.6 million in the quarter under review, up 3.8% on a year-over-year basis.

COB

Revenues at the Coordination of Benefits (COB) segment amounted to $98.6 million in the fourth quarter, down 0.3% year over year.

Margin Analysis

Total cost of services in the reported quarter was $108.6 million, up 7.3% year over year.

Gross profit came in at $54.8 million, which inched up 0.5% from the prior-year quarter. Gross margin was 33.6% of net revenues, down 140 bps year over year.

Selling, general and administrative expenses totaled $29.2 million, up 9% year over year. Operating income in the fourth quarter was $25.7 million, down 7.7% from the year-ago quarter. Operating margin was 15.7%, down 220 bps from the prior-year quarter.

Financial Update

Cash and cash equivalents as of Dec 31, 2019, amounted to $139.3 million, down 22.2% from the prior-year quarter.

Cumulative cash provided by operating activities at the end of the fourth quarter came in at $133.2 million, compared with $96.5 million reported in the year-ago quarter.

2020 Guidance

For 2020, the company anticipates revenues between $705 million and $715 million, indicating an improvement of 14.5-16.2% from prior year. The mid-point of $710 million is higher than the Zacks Consensus Estimate of $701.9 million.

Net income is expected in the band of $76-$80 million, suggesting growth of 10.1-15.9% from the previous year.

Adjusted EBITDA is expected in the range of $185-$192 million, suggesting growth of 12.8-17.1% from the year-ago comparable period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -15.28% due to these changes.

VGM Scores

Currently, HMS Holdings has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, HMS Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.