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Envision Healthcare Corp. EVHC, expected to report second-quarter 2018 results on Aug 6, should see an increase in revenues from its Physician Services segment (which contributes nearly 84% of the company’s revenues), driven by growth from acquisitions, organic sources, same contract revenues and net new contracts.
The company continues to make progress in negotiating its out-of-network revenues to in-network. In 2017, it migrated nearly $500 million of out-of-network revenues to in-network status. For 2018, the company targeted the migration of another $250 million of out-of-network revenues and achieved approximately $100 million of that goal till the first quarter. By yearend, it expects less than 5% of total revenuestobe out-of-network. The second quarter must have seen continued migration of out-of-network revenue to the in-network status.
Operation improvement initiatives, which included revenue cycle management, clinical labor management, and operational efficiencies from support costs that were started by the company in the fourth quarter of 2017, and primarily focused on its Physician Services segment, contributed to EBIDTA growth in the first quarter.We expect the traction to continue in the second quarter.
The company’s efforts on cost improvements are also paying off. In the first quarter, cost items were 10.9% of revenues, which is 20 basis points ahead of its expectations. The company realized $8 million of improvement across all aspects of its support structure with focused attention to personnel costs, consulting costs, and general overhead costs and the same should have occurred in the second quarter.
As a result of the recently completed American Medical Response divestiture, the company’s balance sheet should have seen an increase in cash balance. Since the company is deploying this cash for payment of debt, it must have brought down the leverage levels.
Guidance for Q2
The company expects adjusted EBITDA in a range of $234 million to $246 million. Adjusted EPS for the second quarter is expected between83 cents and 90 cents.
Earnings Surprise History
The company has an attractive earnings surprise history, having surpassed estimates in three of the trailing four quarters, with an average negative surprise of 3.89%. This is depicted in the chart below:
Envision Healthcare Corporation Price and EPS Surprise
Envision Healthcare Corporation Price and EPS Surprise | Envision Healthcare Corporation Quote
Here is what our quantitative model predicts:
Our proven model does not conclusively show that Envision Healthcare is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.