The diagnosis for Healthways (NASDAQ:HWAY) has appeared pretty grim lately. Since early in the year, investors may have been feeling as though Bugs Bunny's Dr. Killpatient was their attending physician, and that their stock had "rabbititus." They may have even seen red and yellow flags swirling before their eyes.

The managed-care provider had been including in its guidance revenue from contracts not yet signed. For the longest time, it also refused to adjust earnings projections to account for the likelihood that a Medicare-run program would be cancelled. It didn't help that Cigna (NYSE:CI) cancelled its participation in the study program, on which Healthways was a subcontractor. And just the other day, Blue Cross Blue Shield of Minnesota decided to drop Healthways in favor of bringing the program in-house.

These setbacks have been reflected in Healthways' stock. After starting the year trading at around $60 a share and briefly flirting with $70, Healthways stock has tumbled more than 50% to trade at about $30 a share.

But although the company may appear to have one foot in the grave, I think the prognosis is much better than that. It's true that Medicare said it will cease its program at the end of this year, but Healthways was able to negotiate a change in the contract it has with the government agency to accept breakeven results, rather than the 5% savings it had originally hoped for. That means Healthways won't have to refund the fees it received, and it also revives some hope that Medicare might allow the program to continue under a process of budget neutrality.

Moreover, Cigna has renewed its own contract with Healthways until 2013 -- a big show of support from the insurer. The loss of Blue Cross is also less than what it appears. Although no company likes to lose an $18 million-per-year contract, it only amounts to 3% of Healthways' $615 million in annual revenues. That's hardly a crippling blow.

There's also nothing to say that Blue Cross Blue Shield of Minnesota will be able to replicate Healthways' success, either. Healthways serviced the contract with 200 nurses, and Blue Cross will be attempting to do the same job with less than half that number. Don't be surprised if we eventually see the insurance company come back into Healthways' fold.

There's no denying that at 25 times trailing earnings, Healthways' shares are rich. It trades at more than twice the multiple of UnitedHeath Group (NYSE:UNH), Aetna (NYSE:AET), WellCare Health Plans (NYSE:WCG), and WellPoint (NYSE:WLP).

But Healthways has always commanded a premium, and its current valuation is almost half of what it was at the start of the year. It hasn't been so cheap in almost five years. Investors are pricing Healthways as if there were little growth left to the story, and we haven't even discussed international expansion opportunities -- though, granted, they are not so clear-cut.

With analysts estimating long term growth of 20% but the market assigning a forward price-to-earnings ratio of just 15, I see plenty of chances for investors to realize a healthy profit that even Elmer Fudd would be able to recognize.