Emergency Medical Stays Neutral - Analyst Blog

We recently reiterated our Neutral recommendation on Emergency Medical Services Corporation (EMS) with a target price of $51.0.

The company functions through two operating subsidiaries – EmCare Holdings (EmCare), its outsourced hospital-based physician services segment, and American Medical Response (AMR), its healthcare transportation services segment. These two segments accounted for approximately 51% and 49%, respectively, of total revenues during the second quarter of fiscal 2010.

Emergency Medical reported an EPS of $0.54 in the second quarter of fiscal 2010, down 19.4% from $0.67 in the year-ago period. However, during the quarter the company recorded charges related to early debt retirement ($19 million) and a settlement of investigation ($3.1 million). Excluding these charges, EPS came in at $0.84, surpassing the Zacks Consensus Estimate of $0.77. 

In addition to posting strong quarterly results, Emergency Medical raised its guidance for 2010. Excluding one-time charges, the company expects EPS in the range of $3.20–$3.30, up from the earlier guidance of $3.10–$3.20.

During the quarter, Emergency Medical refinanced its debt burden, which resulted in a 7.5% reduction in total long-term debt to $415.7 million compared to December 2009. As a result, interest expenses during the quarter were lower by 51% year over year to $5.1 million. The reduction in interest expense should further improve the company’s bottom line going ahead. In line with the company’s increased guidance, we have also raised our estimates for 2010 and 2011 by $0.14 to $3.28 and $0.05 to $3.75, respectively.

Emergency Medical has been able to remain a leading player based on organic and inorganic growth. With a strong cash balance of $313 million, we believe the company is well equipped to target further acquisitions, which should boost its top line. 

We are quite optimistic about the future potential of the emergency medical services market as health authorities and government agencies are increasingly outsourcing these services for cost containment. Moreover, the increase in the aging population will be a significant demand driver for healthcare services, thereby resulting in an increase in ambulance transports, emergency department visits and hospital admissions. 

However, Emergency Medical operates in a highly competitive environment and earns a substantial amount of revenues from programs such as Medicare and Medicaid, which are subject to regulatory challenges. Moreover, the company is currently being investigated for alleged billing irregularities by certain AMR affiliates in New York during 2001-2005.