Friday, July 6, 2012

Team Health Holdings (TMH): Zacks Rank Buy

Shares of Team Health Holdings (TMH) have been in an uptrend since October 2011 on the strength of six positive earnings surprises over the last eight quarters. Riding on a robust long-term earnings growth projection of 15.1%, strong estimate revisions and an improved guidance, this outsourced medical practitioner staffing provider became a Zacks #1 Rank (Strong Buy) stock on July 3, 2012.

Solid First Quarter

On May 1, Team Health reported adjusted earnings per share of 37 cents for the first quarter 2012, beating the Zacks Consensus Estimate by 19.4% and in line with the year-ago results. Adjusted EBITDA moved up 5.6% year-over-year to $50.7 million. However, EBITDA margin dipped somewhat to 10.6% from 11.6% a year ago.

Net revenue increased 16% year over year to $478.7 million, beating the Zacks Consensus Estimate by 2.6%. Revenues were driven by existing contracts (contributing 3.5% to growth), acquisitions (7.9%) and net new contracts (4.6%).

The revenue growth is expected to continue as the company raised its 2012 growth estimate to between 14% and 15% from 12% earlier.

Earnings Estimates Moving Up

In response to the encouraging first quarter results, earnings estimates advanced over the last 60 days. The Zacks Consensus Estimate for 2012 has risen 7.1% to $1.50 per share, representing year-over-year growth of 8.4%. For 2013, the Zacks Consensus Estimate moved up 4.8% to $1.74, reflecting an implied growth of 16.2%.

Stretched Valuation

Team Health trades at a premium to its peers by most metrics, such as price-to-earnings and price-to-book. The stock is currently trading at a forward P/E of 16.7x, a 1.2% premium to the peer group average of 16.5x. The trailing 12 month return on investment (ROI) of 22.2% is about seven times the peer group average of only 3.3%.

The stock has a PEG ratio of 1.09, a 9% premium to the benchmark of 1 for a fairly priced stock. This implies that the projected long-term growth (of 15.1%) is currently priced at a premium.

Chart Shows Strength

Team Health's price performance has been fairly strong with the chart showing an upward trend despite occasional pullbacks. Earnings estimates have mostly led the stock to rally, which is something investors may find attractive. Team Health has already climbed an impressive 23% in the last 3 months compared with a negative return of 1.8% from the broader market index, the S&P 500.

Founded in 1979 and based in Knoxville, Tennessee, Team Health Holdings was originally set up to provide hospital emergency room staffing solutions. It is now one of America's largest suppliers of clinical outsourcing in the hospital setting. Team Health comprises 7,700 affiliated medical professionals who supply various forms of care such as urgent care, anesthesia, hospital and emergency services. The company competes, in certain niches, with MEDNAX, Inc. (MD) among others.

This Week's Aggressive Growth Zacks Rank Buy Stocks

Shares of Kona Grill Inc. (KONA) have been steadily climbing since April 30, 2012, when it reported a phenomenal first quarter earnings surprise of 333.3%. With an average surprise of 410.4% over the trailing four quarters and expected earnings growth of 64.5% in 2012, this casual dining restaurant looks like a solid pick for growth-seeking investors. The company is presently a Zacks #1 Rank (Strong Buy). Read the full article.

After missing estimates in five of the last six quarters, Toll Brothers Inc. (TOL) delivered a huge earnings surprise of 150% in its fiscal second quarter 2012, benefiting largely from a recovering housing market. In fact, its stock price has more than doubled since October 2011 when the housing market was down. This luxury homebuilder became a Zacks #1 Rank (Strong Buy) stock on May 26, 2012 on the heels of a commendable fiscal first quarter earnings performance and subsequent estimate revisions. Read the full article.

Abaxis (ABAX) has witnessed a consistent rise in its stock price during the past year and delivered a positive earnings surprise of 23% in the most recent quarter. Given the long-term growth projection of about 15%, along with an uptrend in earnings estimates, this manufacturer of portable medical and veterinary blood analysis systems became a Zacks #1 Rank (Strong Buy) stock on June 28, 2012. Read the full article.

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