Change Healthcare (CHNG) Down 8.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Change Healthcare (CHNG). Shares have lost about 8.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Change Healthcare due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Change Healthcare Q4 Earnings, Revenues Top Estimates

Change Healthcare Inc. reported fourth-quarter fiscal 2020 adjusted earnings per share of 42 cents, which beat the Zacks Consensus Estimate by 13.5%. However, the bottom line declined 16% year over year.

For fiscal 2020, the company reported adjusted earnings per share of $1.55, down 4.3% from the previous year. The figure beat the consensus mark by 4.7%.

Revenue Details

Revenues inched up 0.8% from the prior-year period to $843.4 million in the reported quarter. The top line also beat the Zacks Consensus Estimate by 0.5%.

For fiscal 2020, the company reported revenues of $3.30 billion, up 0.6% from the previous year. The figure came in line with the Zacks Consensus Estimate.

Segmental Analysis

Change Healthcare operates through three segments — Software and Analytics, Network Solutions, and Technology-Enabled Services.

Software and Analytics

Revenues at this segment totaled $418.7 million, down 0.1% on a year-over-year basis.

Network Solutions

Revenues at this segment came in at $152.2 million, up 8.6% year over year.

Technology-Enabled Services

Revenues at this segment came in at $242.4 million, down 0.6% year over year.

Margin Analysis

In the quarter under review, Change Healthcare reported operating loss of $661.5 million, much narrower than the year-ago operating loss of $971 million.

Financial Position

The company exited the quarter with cash and cash equivalents of $410.4 million compared with $3.4 million in the prior quarter.

Cumulative cash used in operating activities at the end of fourth-quarter fiscal 2020 came in at $153.9 million compared with cash flow from operating activities of $3.4 million in the year-ago period.

Guidance

Due to uncertainty surrounding the COVID-19 pandemic, Change Healthcare has only issued quarterly guidance.

For first-quarter fiscal 2021, the company projects Solutions revenues between $595 million and $620 million. Adjusted EBITDA is estimated in the range of $160-$175 million.

Adjusted EPS is estimated between 14 cents and 18 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -53.42% due to these changes.

VGM Scores

Currently, Change Healthcare has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Change Healthcare has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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