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Summary

  • The company beat earnings and shares soared.
  • We still questioned the long-term viability of its business despite the recent performance.
  • We were off on our call for the stock to trade lower in the interim, but still believe its fair value is closer to $8.

Shares of Healthways (NASDAQ:HWAY) jumped over 10% on 2Q earnings, which beat consensus on both the top and bottom lines. Earnings were $0.01 per share (beating consensus of $0.00) and revenues marginally beat consensus. Guidance for full year 2014 shows EPS coming in between $0.11 and $0.26, versus consensus of $0.21.

The company boasted that it signed 19 contracts during 2Q, 3 with new customers. As part of its 19 contracts signed was a renewal of one of its largest deals, with Highmark for its SilverSneakers Fitness Program.

Shares are up 36% since we first covered Healthways in November. We questioned the sustainability of its business model and its valuation, noting:

"In other words, the company offers wellness solutions that an ordinary person could implement on their own and through consultation with their doctors and physicians. Not exactly a business model with a comparative advantage or an "economic moat" as Warren Buffett likes to say."

At the time of our November analysis, Healthways traded at 39x forward earnings, it now trades at 44x.

Source: Update: Healthways Earnings