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Why HMS Holdings Shares Are Crashing Today

By Keith Speights - Nov 1, 2019 at 11:49AM

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Investors are focusing on the negatives more than the positives with the company's mixed Q3 results.

What happened

Shares of HMS Holdings ( HMSY ) were crashing 19.2% lower as of 11:31 a.m. EDT on Friday. The big decline came after the healthcare management services company reported its third-quarter results before the market opened this morning.

HMS announced Q3 revenue of $146.8 million, down 4.8% year over year and well below the consensus Wall Street revenue estimate of $165.8 million. The company posted Q3 adjusted earnings per share (EPS) of $0.30, down slightly from its adjusted EPS of $0.31 in the prior-year period but better than the average analysts' estimate of $0.28.

What probably bothered investors the most, though, was that HMS lowered its full-year 2019 outlook. The company now expects total revenue will be between $630 million and $640 million. Its previous guidance projected full-year revenue between $650 million and $660 million.

HMS upped its guidance range for net income to between $89 and $94 million, up from a range of $85 million to $90 million. However, it lowered its outlook for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to between $182 million and $187 million from its earlier projection of between $185 million and $190 million.

Businessman looking at red line with an arrow plunging through the floor.

Image source: Getty Images.

So what

HMS Holdings CEO Bill Lucia acknowledged that the company had "posted mixed results in the third quarter." He said that "our business can experience quarterly ebbs and flows, as evidenced by our favorable revenue and earnings in the first two quarters this year."

But investors sometimes focus much more on the negatives than the positives with quarterly results. That appears to be what's happening with HMS.

It's certainly concerning that the company's coordination-of-benefits business, which is its biggest revenue generator, is shrinking rather than expanding. However, HMS remains on track to deliver overall revenue and earnings growth this year.

Now what

Investors will probably want to take a wait-and-see stance with HMS after its Q3 performance. Bill Lucia is exactly right that there is some seasonal volatility with the business, which impacts lots of healthcare stocks. HMS' results in the next couple of quarters should either provide reassurance that the company is on the right track overall -- or present genuine reasons for concern.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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