- 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.