Amsurg: Surgery Centers and the ACA

10/16/2015 7:00 am EST


We believe the Affordable Care Act has led to increased hospital activity as the overall number of insured patients has increased, notes S&P Capital IQ analyst Keith Snyder in Standard & Poor’s The Outlook.

We expect this trend to continue, driving up hospital procedure volume and increasing demand for AmSurg (AMSG), which acquires, develops, and operates ambulatory surgery centers (ASCs).

Centers are located adjacent to—or in close proximity to—the medical practice of its physician partners. Each center provides a narrow range of high volume, lower risk surgical procedures.

They also provide outsourced physician services to hospitals, ASCs, and other healthcare facilities, primarily in the areas of anesthesiology, children’s services, emergency medicine, and radiology.

AMSG markets its surgery centers directly to patients, referring physicians and third-party payers, including health maintenance organizations, preferred provider organizations, and employers.

We expect the ACA to continue to drive demand for ASCs and outsourced physician services.

Recent pressure on hospitals to cut costs has led to increasing popularity of ASCs. Data shows that ASCs save patients an average of 25% in costs compared with hospital surgery.

In addition, despite the lower cost, patient satisfaction outcomes are in-line with hospital surgery outcomes. As the largest ASC operator in the US, we believe AMSG will be a primary beneficiary of this trend.

AmSurg carries S&P Capital IQ’s highest investment recommendation of 5-STARS, or strong buy.

Our 12-month target price of $90 is based on a P/E multiple of 22.5 times our 2016 operating EPS estimate of $4.01.

This ratio is above the comparable peer average of 19.3 times. We believe a premium is warranted given AMSG’s above average revenue growth and favorable market opportunities.

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