Surgery Partners feeling no pinch from macroeconomic weakness

January 16, 2024 at 07:48 AM EST

Professional aesthetic medicine surgeon operating with scalpel

Surgery Partners Inc. (NASDAQ: SGRY) is a leading healthcare services provider that owns and operates over 180 outpatient surgical centers in 31 states. Its integrated delivery model includes surgical facilities and ancillary services comprised of anesthesia services and multi-specialty physician groups.

Its outpatient facilities compete with hospitals like HCA Healthcare Inc. (NYSE: HCA) on a smaller scale. The company is among the few that have stated it feels no pressure from macroeconomic conditions. It further underscores the belief that the medical sector is recession-proof.

Is healthcare recession-proof?

While so many companies in all industries proclaim how macroeconomic conditions have negatively impacted their businesses, how can Surgery Partners claim its business has not? Surgeries were an epicenter during the pandemic as emergency rooms and ICUs filled up with COVID-19 patients. Surgery procedures were put on hold but have returned in the post-pandemic era. While healthcare is something that people need in recessions and expansions, the backdrop can impact demand for elective procedures.

Outpatient surgery facilities: Much cheaper than hospitals

Surgery Partners' business model suggests that their outpatient surgical facilities are a much more cost-effective alternative to hospitals. Outpatient procedures range from simple endoscopies and biopsies to more complex orthopedic joint replacements and laparoscopic procedures. They enable the patients to recover at home rather than spend the night racking up major bills at the hospital.

The higher efficiency allows for less regulatory burden for the business and more convenience and savings for patients. As the "cutting the cord" movement has disrupted the cable companies, outpatient surgical facilities have disrupted the hospitals. Outpatient surgeries at a facility can cost 45% to 60% less than hospitals. It's no wonder that surgical cases are migrating to outpatient surgical facilities. Check out the sector heatmap on MarketBeat.

Solid Q3 2023 earnings report

Surgery Partners reported Q3 2023 EPS of 19 cents, beating consensus analyst estimates by 5 cents. Revenues grew 8.6% year-over-year (YoY) to $671.4 million, versus $671.99 million consensus analyst estimates. Days-adjusted same-facility revenues grew 14.2%. Adjusted EBITDA was $105.5 million, up 9.7% YoY. Adjusted EBITDA margin improved by 15.7% YoY. Surgery Partners raised full-year adjusted EBITDA guidance to $436 million to $440 million, with revenues of around $2.75 billion.

Cash and flow

The company closed the quarter with $236 million in cash and cash equivalents and $544.9 million of borrowing capacity. Cash flows from operating activities rose to $104.6 million, up from $29.7 million in the year-ago period. The year-to-date (YTD) operating cash flows were $231.2 million, up from $151.6 million in the year-ago period. Free cash flow was $91.4 million YTD. The company's net debt to EBITDA ratio was 4.1x, calculated under its credit agreement. Get AI-powered insights on MarketBeat.

CEO insights

Surgery Partners CEO Eric Evans commented, "Surgical case volume, particularly in higher acuity and strategically important growth areas, remained strong this quarter, unaffected by any material external events. We continue to benefit from migrating surgical cases to the optimal site of care, a trend that benefits all constituents of the healthcare system. We continue to invest in these targeted growth areas through physician recruitment, business development and de novo buildouts."

Reaffirming guidance

On January 8, Surgery Partners reaffirmed full-year 2023 guidance with revenues expected at $2.75 billion, matching consensus analyst estimates. Based on the results through November 2023, the company reaffirms its 2023 adjusted EBITDA guidance of $436 million to $440 million. The company projects full-year 2024 growth in the mid-teens with adjusted EBITDA to be higher than $495 million.

Surgery Partners analyst ratings and price targets are at MarketBeat. Surgery Partners' peers and competitor stocks can be found with the MarketBeat stock screener. SGRY trades at 44.4x forward earnings and has an 8.01% short interest.

Daily tightening trading range

The daily candlestick chart on SRGY illustrates a tightening trading range as shares ping-pong between the daily 50-period moving average support at $31.23 and the daily 200-period moving average (MA) resistance at $34.24. The 50-period MA is sloping up, which can result in a golden cross breakout if it can crossover up through the 200-period MA. The daily market structure low (MSL) buys trigger overlaps with the daily 200-period MA resistance. The daily relative strength index (RSI) has pulled back from the 60 bands but may be setting up a coil attempt. Pullback support levels are at $31.23, $30.14, $27.25 and $25.16.

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