Here's Why Surgery Partners Inc. Is Sinking Today

MarketsMotley Fool

What happened

Shares of Surgery Partners Inc. (NASDAQ: SGRY), a provider of surgical care services, tanked 52% shortly after the opening bell this morning in response to an earnings miss on the top and bottom lines. The stock recovered somewhat and was off by about 34.7% as of 11:00 a.m. EDT during Wednesday's session.

Continue Reading Below

So what 

Surgery Partners Inc.'s rapidly expanding business appears to be experiencing growing pains. Second-quarter revenue fell just 0.5%, but total operating expenses grew 4.9% compared to the same period last year. The company's operations turned a $37.7 million profit that was 25.9% lower than the year-ago period.

The slim operating profit was gobbled up by $25.6 million spent servicing a $1.80 billion debt burden, and a loss of $16.1 million attributable to the company's non-controlling interests sent the bottom line into the red. Altogether, the company reported a $4.5 million loss for the three-month period.

Now what

Clearly, getting bigger hasn't helped the company reach sustainable positive cash flows. Citing "recent softness in healthcare utilization" and a "payor mix shift," management revised its full-year outlook downward. Instead of 9% to 11% revenue growth forecast a few months ago, the company now expects revenue to fall between $1.18 billion and $1.20 billion. Hitting the top end of the provided range would represent a 4.7% increase over 2016 revenue.

Closer to the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization are expected to land between $174 million and $181 million this year. Hitting the top end of the new expected range would work out to a meager 1% gain over $179.3 million in adjusted EBITDA reported in 2016. That's a big disappointment considering the year-to-year 10% to 15% growth range management issued three months ago.

10 stocks we like better than Surgery PartnersWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Surgery Partners wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 1, 2017

Cory Renauer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.