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.
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