This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Apria Hammered on Slowdown

Apria (AHG), a major provider of home health care services, has landed in a sickbed of its own.

The company saw its stock tumble 15% to a two-year low after warning of a dramatic slowdown in revenue growth and a looming shortfall in full-year earnings. It blamed three separate businesses -- durable medical equipment, infusion therapy and respiratory medications -- for the big disappointment.

Apria said that revenue growth had slowed to just 1% in the third quarter and will likely remain under pressure for the remainder of the year. As a result, the company now expects to report full-year revenue growth of no more than 3% -- roughly half its previous estimate -- and a profit of between $1.68 and $1.72 a share, instead of the $1.90 that Wall Street had been anticipating.

Even before Apria's warning, however, some experts had expressed concern about at least one of the company's troubled business lines. Specifically, they noted that the federal government could soon cut the fees it pays to companies such as Apria for dispensing respiratory drugs to Medicare patients. Moreover, they noted, the proposed cuts would come on top of sharp reductions in the amount the government pays for the respiratory medications themselves.

"In fiscal year 2005, the Centers for Medicare and Medicaid Services reduced the drug reimbursement for respiratory drugs by roughly 85% but increased the monthly dispensing fee from $5 to $57 at the urging of the industry," said Citigroup analyst Matthew Ripperger. But a new government report, published in late September, "provides additional support to the government's claim that the $57 dispensing fee is too generous."

To be sure, Apria competitor Lincare (LNCR) stands to lose the most. Ripperger estimates that every $10 reduction in dispensing fees would shave a full dime from the company's bottom line. Still, he has warned, Apria faces some exposure as well. Now, however, the company itself has slashed its outlook weeks before the government is even expected to reach a final decision on that particular issue.

Early Warning

One expert actually downgraded Apria two months ago in anticipation of bad news.

Wachovia analyst William Bonello cut the stock from market perform to underperform because he felt an earnings shortfall coming. Indeed, Bonello suggested that Apria's acquisition-related growth has been masking the company's "deteriorating base business" for more than a year. Even without Medicare cuts, he said, the company's nonacquired businesses weathered a second-quarter drop in earnings before interest, taxes, depreciation and amortization. Going forward, he predicted, the company will fall short of its profit goals and see its shares come under pressure as a result.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $123.25 0.00%
FB $83.30 0.00%
GOOG $548.34 0.00%
TSLA $185.00 0.00%
YHOO $45.10 0.00%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs