Healthways' high hopes for '07 boost shares

Disease manager expects first international contract, faces integration challenge in Axia deal -- stock roars out of the gate at market open

Email | Print By Walker Duncan

Shares of Healthways Inc. bounced back with a vengeance this morning from their recent slump, opening the day at $43.80 after closing Tuesday at $39.31. At 9:01, the share price stood at $44.05, up 12.06 percent, on heavy trading volume. The rebound comes on the heels of a strong 2007 outlook released by the company after the market had closed.

Healthways held a conference call late Tuesday to discuss the 4Q earnings release and to provide some predictions for the coming fiscal year. The hosts of the call were the company’s President and CEO Ben Leedle, and its CFO Mary Chaput, who spent a little over an hour and a half going over the earnings and fielding questions from analysts.

The company reported earnings of 38 cents per share on $114.9 million of revenue, slightly beating the consensus analyst prediction of 37 cents per share on $114.4 million in revenue. The revenue surge from $87.6 million in the fourth quarter of 2005 to $144.9 million in 2006 represents an increase of 31 percent.

The projections offered for the fiscal year of 2007 included earnings of $1.44 to $1.61 per share, and revenues of somewhere between $667 million to $701 million. This expectation is significantly higher than analysts' expectation of $1.48 per share on $512.1 million in revenue.

Healthways also said it expects to sign its first international contract within fiscal 2007, as its concerted investments in European prospects are evidently bearing fruit. Management believes the international market is one of the firm's best growth opportunities.

The company hopes to see more revenue from its Medicare pilot programs that up to this point have yielded disappointing results. According to Leedle, some of the shortcomings in the revenue from these programs were due to the pilot populations being “much older and sicker” than the company had previously expected, yielding smaller savings numbers.

Realizing more gains from the Medicare market and extending to international markets will likely prove to be positive steps for the company but for now they are just opportunities. The company will also have to successfully close its recently announced merger with Arizona-based Axia Health Management which is expected to happen before the end of this calendar year. The results for the fiscal ’07 will hinge on Healthways’ successful incorporation of all of these programs into its business.

A replay of the conference call is available at the company's website.