What: Shares in Healthways, Inc (NASDAQ:TVTY) toppled by 20% earlier today after the company lowered its outlook for full year sales and profitability.
So What: The healthcare analytic company reduced its sales forecast for this year to a range of between $770 million and $785 million from its prior expectations for sales of between $800 million and $825 million.
Healthways also cut its outlook for earnings before interest, taxes, deductions, and amortization, or EBITDA, by $20 million.
Healthways also reiterated that EBITDA will be weighed down by approximately $5 million due to compensation related expenses associated with its former CEO leaving the company in May.
The combination of those headwinds has Healthways predicting that its EBITDA margin will be between 8% and 8.5% in 2015.
Healthways cites less-than-anticipated growth from one large commercial contract and slower sales for a cardiovascular outcomes product as reasons behind cutting its outlook.
Now What: Since peaking in March, Healthways' shares have been slipping, and today's news does little to reassure investors that Healthways has a handle on what's necessary to give them a kick-start.
I believe that there's an opportunity for companies like Healthways to use data crunching to design programs that can lower healthcare costs by reducing the prevalence of disease and illness, but even at these lower share prices, I find it hard to cozy up to this company and buy its shares.
The interim CEO situation concerns me that the C-Suite isn't as focused as it needs to be on designing and delivering on future growth plans, and Healthways stock remains pricey given its forward P/E of 20, which could increase further if analysts cut next year's forecast after digesting this news. For those reasons, I'm content to avoid owning this stock until I'm convinced that the company has turned a corner.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.