Why Healthways Inc. Shares Jumped

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 Healthways (NASDAQ: HWAY  ) , a specialized health solutions provider that promotes physical emotional and social well-being, jumped as much as 16% after the company reported better than expected first-quarter results after the closing bell last night.

So what: For the quarter, Healthways delivered a 7% increase in revenue to $176.8 million. It announced 20 new contracts signings in the first quarter, including a major contract with a Fortune 100 company that will cover more than 300,000 eligible members. Adjusted net loss for the quarter also shrank to just $0.07 per share from a loss of $0.12 per share in the year-ago quarter. Wall Street had expected Healthways to report a wider loss of $0.11 per share on $176.5 million in revenue. Looking ahead, the company reaffirmed its full-year guidance for $0.11-$0.26 in earnings per share on revenue of $730 million-$760 million.

Now what: It's hard to deny that this was a solid quarter of growth for Healthways with its top line headed in the right direction and its loss shrinking. Furthermore, as health-care costs rise and baby boomers age, the need for fee-based specialized health solutions should only increase; this will play right into the hands of Healthways. However, speaking strictly as a skeptic and value investor, I'd contend that much of that optimism has likely already been baked into its shares. With a robust growth rate I might support a forward P/E of 55, but its expected high single-digit growth rate over the next couple of years doesn't make me a fan at this price.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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Related Tickers

8/28/2015 4:00 PM
HWAY $11.95 Up +0.01 +0.08%
Healthways CAPS Rating: **