Why Healthways Shares Were Hit Hard

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of wellness program administrator Healthways (NASDAQ: HWAY  ) plummeted 30% today after its quarterly results and outlook disappointed Wall Street.

So what: The stock has pulled back violently over the past six weeks on concerns over industry headwinds, and today's third-quarter results -- EPS of $0.05 on flat revenue of $166.6 million vs. the consensus of $0.12 and $182.6 million, respectively -- coupled with downbeat guidance only confirms that trouble. Management cited lower-than-expected risk lives available and commercial health plan membership fluctuations for the weak results, giving investors plenty of negative vibes over its upcoming quarters.

Now what: For 2013, management now expects a per-share loss of $0.10-$0.04 on revenue of $665 million-$675 million, well below the consensus view of $0.21 per-share profit and revenue of $715.7 million.

"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."

With Healthways shares now off 50% from their 52-week highs, however, that slowdown is quickly being baked into the valuation. 

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