If you’re a healthcare investor, pay close attention to the following: On Wednesday, shortly after the opening bell, shares of Surgery Partners Inc. (NASDAQ:$SGRY) dropped 52%. Why? It was in response to an earnings miss on both the top and bottom lines. Even though the stock recovered somewhat during the day, shares of the surgical care services provider still closed at a mere $12.15.
So, What Happened?
For the second quarter, revenue dropped a measly 0.5%, but total operating expenses increased 4.9% compared to the same period in 2016. Surgery Partners’ operations brought in a $37.7 million profit that was 25.9% lower than the 2016 period.
Additionally, in total, the company posted a $4.5 million loss for the three-month period.
Now What’s Going To Happen?
It’s obvious now that getting bigger has not helped Surgery Partners reach the sustainable positive cash flows they were hoping for. Now, thanks to “recent softness in healthcare utilization” and a “payor mix shift,” management has revised its 2017 outlook downward. Instead of forecasting 9% to 11% revenue growth, Surgery Partners now expects revenue to fall between the range of $1.18 billion and $1.20 billion. If the Nashville, Tennessee-based company were to reach the top end of the provided range, this would represent a 4.7% increase over revenue last year.
Moving closer to the bottom line, adjusted EBITDA are forecast to land between the range of $174 million and $181 million in 2017. If the company were to hit the top end of the new expected range, this would work out to a 1% over $179.3 million in adjusted EBITDA reported last year. Seeing as the year-to-year 10% to 15% growth range management was issued three months ago, this is a big disappointment for investors.
So what’s the takeaway? Well, based on today’s results, you might want to leave this stock out of your portfolio if you’re looking for healthcare stocks to invest in.
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