Healthways: The Implosion of the Day (HWAY, CI)

Healthways Inc. (NASDAQ: HWAY) could be named “The Implosion Stock of the Day.”  Revenues rose 3.3% from a year earlier to $176.2 million, but that sequential earnings gain is actually more than a 6% annual drop to $0.28 EPS.  In raw dollars, the earnings drop was an even higher percentage. Healthways is a provider aimed at helping people maintain or improve their health and well-being to reduce overall healthcare costs.

What does one do when 65% sequential earnings growth is not enough?  That is what investors can ask, although a contract loss is the biggest culprit for today’s implosion. Cigna Corporation (NYSE: CI) recently informed the company that it will wind down its current contract in 2012 ahead of the contract’s Feb-2013 expiration and that contract is expected to produce revenues of $110 to $115 million. Healthways expects a reduction in revenues from Cigna for 2012 compared with 2011 in a range of $60 million to $65 million.  Ouch.
 
The company noted that its net operating cash flow was down from the prior two quarters to $9.4 million.  The company did note that it continues to expect full-year net operating cash flow in a range of $80 million to $100 million.  The company also affirmed its guidance for 2011 revenues of $672 to $710 million ($650 to $680 million domestic and $22 to $30 million international).  The company also sees 2011 net income in a range of $0.90 to $1.00 EPS versus a previous range of $0.90 to $1.08 EPS.

Shares are down almost 35% around $7.40 in the pre-market and the prior 52-week trading range was $8.63 to $17.62.

JON C. OGG