No Pain, No Gain ;O): Zacks

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.

TEAM HEALTH HLD (TMH): Free Stock Analysis Report

Zacks Investment Research

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For Immediate Release

Chicago, IL –June 28, 2012 – Today, Zacks Investment Ideas feature highlights Features: ProShares Ultra Health Care ETF (RXL), ProShares UltraShort Health Care ETF (RXD), Direxion Daily Healthcare Bull 3x Shares (CURE) and Direxion Daily Healthcare Bear 3x Shares (SICK).

Health Care ETFs & the Future of Obamacare

In summary, if the individual mandate is thrown out, it looks likely to spell bad news for the entire sector. That is because the mandate would add a ton of cheap-to-ensure people to the rolls of HMOs while it would drive up demand for devices, services and drugs, helping pretty much the entire industry.

If the bill is upheld in its entirety, a much more mixed outlook could be the result. With that being said, it will definitely be a big win for pharma, and to an extent healthcare providers and service companies as well. However, medical device makers look likely to be hurt by the ruling due to new taxes, while biotech could suffer from a similar issue as well (see Medical Device ETFs: A Better Way To Play Health Care?).

Lastly, if the entire bill is deemed unconstitutional, which at this point seems unlikely, it also could produce a mixed result. Broad health care is likely to stay about even, but investors could see a modest uptick for device makers and biotech, while pharma and the HMO market could be losers due to lower demand for their services.

Beyond these unleveraged choices, investors also have a few ways to play the decision with leverage. In total, there are four ETFs in this segment of the fund world, offering investors exposure to both bull and bear 2x strategies as well as both directions in 3x form as well:

ProShares Ultra Health Care ETF (RXL)/ ProShares UltraShort Health Care ETF (RXD)- These two products track, respectively, the 2x and -2x versions of the Dow Jones Health Care Index. This benchmark is heavily weighted towards big pharma, but it is still relatively spread out among its 122 securities.

Direxion Daily Healthcare Bull 3x Shares (CURE)/Direxion Daily Healthcare Bear 3x Shares (SICK)- These two products track, respectively, the 3x and -3x versions of the Health Care Select Sector Index. Much like their ProShares counterparts, these funds have a focus on big pharma, although they have a heavier level of concentration in their top securities, only holding 52 stocks in total (read Understanding Leveraged ETFs).

While the volumes on these products aren’t exactly the most robust in the ETF world-- suggesting relatively wide bid ask spreads-- they could see higher levels of activity leading up to and immediately following the in-focus decision. Given this, these products could be the way to play the situation, although investors should be prepared for a great deal of volatility and uncertainty no matter what health care stocks or ETFs they hold immediately following the pivotal Supreme Court ruling.

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