Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why HMS Holdings Shares Are Crashing Today

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

HMS Holdings Corp. Stock Quote
HMS Holdings Corp.
HMSY

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.