Barrington Maintains Outperform Rating On Healthways Ahead Of Q3 Earnings

Barrington Research maintains an Outperform rating on Healthways, Inc. (NASDAQ: HWAY) ahead of its third-quarter results on November 1 and following the closure of the unprofitable total population health solutions business.

The brokerage expects adjusted EPS of $0.52 while the consensus estimate stands at $0.49. Barrington projects third-quarter revenue to come in at $124.7 million, in line with consensus.

Analyst Michael Petusky said the gross margins of network solutions business is not likely to meaningfully deteriorate further, but he is also not expecting an significant expansion either.

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The analyst expects Healthways to end 2016 with around $230 million in net debt, but the company intends to deleverage its balance sheet fairly aggressively beginning in 2017. Given the company’s strong projected cash flows, the analyst sees net debt to be well below $150 million by of the end of 2017.

As such, Petusky raised his price target to $30 from $29 to reflect his increasing conviction that Healthways will be able to de-lever its balance sheet in a very timely manner.

“Healthways now has a much more predictable business, which should continue to generate strong profit margins and exceptional free cash flow generation,” Petusky wrote in a note.

Shares of Healthways closed Wednesday’s trading at $25. In the pre-market hours Thursday, the stock is down 3 percent to $24.19, but at last check, the stock had rebounded to up 0.2 percent at $25.05.

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