Why Bio-Reference Labs (BRLI) Crashed Wednesday

NEW YORK (TheStreet) -- Shares of Bio-Reference Labs (BRLI) were pounded on Wednesday after the company failed to impress with fourth-quarter and full-year guidance. The stock was slashed 21.7% to $29.55 by market close.

The clinical testing laboratory expects fourth-quarter patient volume to grow 15% (or 12% when adjusted for lost growth associated with Hurricane Sandy). Revenue per patient for non-genetic testing is expected to fall 4% from third-quarter levels. Forecasted revenue of $192 million is 17% higher than the year-ago quarter.

The company anticipates fourth-quarter net income of 46 cents a share, 6 cents lower than a year earlier, and full-year earnings of $1.65 a share, compared to $1.51 in the year-ago quarter. Analysts polled by Thomson Reuters were looking for fourth-quarter earnings of 47 cents a share and full-year at $1.71 a share.

The Elmwood Park, N.J.-based business said it had to negotiate contract modifications to reimbursement rates and payment methods associated with a number of health plans which negatively affected profitability.

"Despite continued strong volume growth, the company believes there is an ongoing recalibration of reimbursement for the industry, which has resulted in substantial downward pressure from many payers regarding reimbursement in FY13," the company said in a statement.

"We believe there is a disconnect between the innovative, clinically relevant services our industry offers and the decreasing value placed on them by the payer community as demonstrated by changes in reimbursement rates and conditions," added CEO Marc D. Grodman.

The company is expected to release fourth-quarter earnings on Dec. 2.

TheStreet Ratings team rates Bio-Reference Labs as a Buy with a ratings score of B+. The team has this to say about their recommendation:

"We rate Bio-Reference Labs (BRLI) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • BRLI's revenue growth has slightly outpaced the industry average of 9.8%. Since the same quarter one year prior, revenues rose by 15.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • BRLI's debt-to-equity ratio is very low at 0.13 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, BRLI has a quick ratio of 2.10, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 50.92% over the past year, a rise that has exceeded that of the S&P 500 Index. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • Bio-Reference Labs has improved earnings per share by 17.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Bio-Reference Labs increased its bottom line by earning $1.50 a share vs. $1.29 a share in the prior year. This year, the market expects an improvement in earnings ($1.79 vs. $1.50).
  • The net income growth from the same quarter one year ago has exceeded that of the Health Care Providers & Services industry average, but is less than that of the S&P 500. The net income increased by 16.7% when compared to the same quarter one year prior, going from $12.6 million to $14.7 million.

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