Stock Alert for Healthways Inc. (HWAY)

Healthways Inc.  (NASDAQ: HWAY) is a provider of specialized, comprehensive solutions to help millions of people maintain or improve their health and well-being and, as a result, reduce overall costs. The Company’s solutions are designed to help healthy individuals stay healthy, mitigate or eliminate lifestyle risk factors that can lead to disease and optimize care for those with chronic illness. Its proven, evidence-based programs provide highly specific and personalized interventions for each individual in a population, irrespective of age or health status, and are delivered to consumers by phone, mail, Internet and face-to-face interactions, both domestically and internationally. HWAY also provides a national, fully accredited complementary and alternative Health Provider Network and a national Fitness Center Network, offering convenient access to individuals who seek health services outside of, and in conjunction with, the traditional healthcare system.

Share Statistics (25-Oct-11) FY2009 FY2010 % Chg Q22010 Q22011 % Chg
Symbol HWAY Revenue, $Mn 717.43 720.33 0.4% 175.52 169.60 -3.4%
Current price $6.39 Gross marg. 27.1% 31.5% 16.2% 30.5% 25.7% -15.7%
52wk Range: $6.22-$17.62 Oper. margin 12.6% 7.9%
Avg Vol (3m): 233,003 Net margin 1.4% 6.6% 371.4% 6.7% 3.4% -49.3%
Market Cap. 215.36M
Shares Outstanding 33.70M EPS, $ 0.88 1.53 73.9% 0.34 0.17 -50.0%

Source:, SEC Filings.

Investment Highlights

Shares of HWAY dropped to a new low of $6.22 yesterday on news it will lose a contract with insurer Cigna Corp. (NYSE: CI), the company’s largest customer. Cigna accounted for nearly 19% of HWAY’s total revenue of $720.3 million in 2010. For 2011, the Cigna contract is expected to produce revenues for the Company in a range of $110 million to $115 million.

Shares of the Franklin, Tennessee-based healthcare management provider …

“In a release late on Monday, HWAY said Cigna informed the Company of its intention to begin to wind down its current contract in 2012 — well before the contract was slated to expire in February 2013.

HWAY said it expects a year-over-year reduction in revenues from Cigna in a range of $60 million to $65 million in 2012.  The size of a few remaining business development opportunities this year will delay any immediate decisions related to the underutilized capacity for Cigna and the overall company cost structure, HWAY said in a statement. These decisions will be finalized before the end of the year.

“We believe this decision by Cigna relates to the disruption of traditional health care delivery models due to health care reform,” commented HWAY president and CEO Ben R. Leedle Jr.  “We also note that Cigna’s decision is in no way related to the performance of our solutions for Cigna and its customers as our outcomes from those solutions have been consistently and significantly positive for almost 15 years. We are working with Cigna to determine the course of our relationship, if any, beyond the end of the current contract in early 2013.”

Reuters quoted analyst Sean Wieland of Piper Jaffray & Co. as saying that the Cigna contract loss, while impacting revenues only by 15%, impacts earnings by as much as 60%, which will be hard to replace with new contracts.”

Analyst Joshua Raskin of Barclays Capital said he saw little chance of earnings-per-share growth in the next few years for the company. “While the recent past has been difficult for Healthways, we believe that the future could be much tougher,” Raskin said.

HWAY saw its ratings slashed by analysts at Barclays and BB&T Capital Markets.


Financial Summary

HWAY posted total revenues of $176.2 million for the third quarter ended September 30, 2011, an increase of 3.3% from $170.5 million for the third quarter of 2010. Net income for the latest quarter was $9.5 million, or $0.28 per diluted share, compared with $10.5 million, or $0.30 per diluted share, in the year-earlier period.

The Company on Monday affirmed its guidance for 2011 revenues in a range of $672 million to $710 million. This range includes revenues from domestic operations in a range of $650 million to $680 million and from international revenues in a range of $22 million to $30 million.

It narrowed its full-year net income projection to a range of $0.90 to $1.00, from the previous range of $0.90 to $1.08, mainly citing an expected delay in the timing for achievement of certain revenue milestones in the Caisse Nationale d’Assurance Maladie des Travailleurs Salaries contract, from the end of 2011 to early 2012. This 2011 guidance does not include any impact from potential changes in the Company’s operating capacity overhead support and infrastructure as a result of the expected CIGNA business reductions for 2012.


Financial Strength (25-Oct-2011)




S&P 500

Quick Ratio (MRQ) 0.71 1.81 0.67
Current Ratio (MRQ) 0.90 0.91 2.22 1.06
LT Debt to Equity (MRQ) 50.81 68.49 20.37 101.33
Total Debt to Equity (MRQ) 51.76 73.43 25.69 141.34
Interest Coverage (TTM) 5.67 2.96 1.78 24.96

Source:, SEC Filings.

Technical Analysis


HWAY is below the lower Bollinger Band, implying that it is currently extended to the downside from its recent trend.

The MACD for HWAY currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9-day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Comparative Analysis

Company Name Ticker Price per Mrkt. Cap. P/E P/S
Oct25-2011 symbol Share, $ $ Mn 2011 2012 2011 2012
Express Scripts Inc. ESRX 38.44 18.77B 12.09 9.88 0.41 0.40
Gentiva Health Services Inc. GTIV 3.65 111.72M 1.75 2.02 0.06 0.06
Specialized Health Services Median       14.21 n/a 0.78 n/a
Healthways Inc. HWAY 6.30 212.32M 6.63 5.48 0.31 0.29

Source: Thomson Financial

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