This column originally appeared exclusively first for Stock Investor Cheat Sheet premium subscribers on May 6th and has been updated to reflect current data changes.
With shares of WebMD Health Corp. (NASDAQ:WBMD) trading at around $29.72, is WBMD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
WebMD is making some changes, and these changes are likely for the better. It's apparent that CEO Cavan M. Redmond wasn't the ideal leader. According to Glassdoor.com, employees rated their employer a 2.6 of 5. Only 36 percent of employees would recommend the company to a friend, and only 22 percent of employees approved of Cavan M. Redmond. The Board of Directors has appointed David J. Schlanger to serve as Interim Chief Executive Officer.
Martin J. Wygod, Chairman of WebMD, said, "The change announced today will best position us to build on the momentum that our senior management team has created to date. Under David's leadership, we will accelerate the development and implementation of strategies to diversify our revenue base and capture the opportunities arising from the rapidly changing healthcare landscape."
All that said, Cavan M. Redmond must have done something right. In Q1, webmd.com averaged 132 million unique users per month, which was a 23 percent increase year-over-year. Regardless, company culture must be strong in order to achieve optimal results. Therefore, a change was necessary.
WebMD recently beat Q1 expectations and raised guidance. The company reported a loss of three cents per share whereas analysts expected a loss of 15 cents per share. Revenue also beat expectations by 5 percent. In regards to guidance, WebMD raised full-year expectations to -$0.26 to -$0.03. Analysts expected a loss of 30 cents per share. The raised guidance is mostly related to an improved outlook in the public portal advertising business. WebMD expects FY2013 revenue to come in between $450 million and $470 million, which is at best flat compared to 2012. For the current quarter, WebMD expects revenue to exceed $115 million. This would be a significant improvement on a year-over-year as well as sequential basis.
WebMD offers four services: WebMD Consumer Network, WebMD Professional Network, WebMD Private Portal Services, and WebMD Publishing Services.
WebMD Consumer Network consists of WebMD.com, MedicineNet.com, eMedicineHealth.com, and RxList.com. Through these sites, WebMD helps people take an active role in managing their health and wellness via timely written and video content provided by medical writers, physicians, and health educators. This is an interactive service.
WebMD Professional Network consists of Medscape.com and theheart.org. This service offers continuous education and training for professionals. The goal of the service is to increase clinical knowledge, provide important medical opinions, and to report medical findings and the latest treatments. This service also includes WebMD Direct Services, which consists of a proprietary database of physicians and offers physician engagement solutions, targeted recruitment, and online distribution and delivery.
WebMD Portal Services is designed to offer employers and health plan members more informed decisions in regards to benefits, treatments, and providers. Members have an opportunity to access personal health information, which can help aid these decisions. This service also includes health risk assessments, lifestyle education, health coaching, and pertinent information regarding cost and quality of healthcare. The ultimate goals are to use the information to determine the best provider, and to estimate costs of future treatments and procedures.
WebMD Publishing Services publishes WebMD the Magazine, which can be found in approximately 85 percent of physician waiting rooms in the United States.
In all, WebMD is widely known as the most trusted and recognized brand of health information. It would be difficult to imagine a scenario where this suddenly changes.
The chart below compares fundamentals for WebMD, Computer Programs & Systems Inc. (NASDAQ:CPSI), and Merge Healthcare Incorporated (NASDAQ:MRGE).
| WBMD | CPSI | MRGE | |
| Trailing P/E | N/A | 18.26 | N/A |
| Forward P/E | 371.50 | 17.19 | 12.19 |
| Profit Margin | -2.97% | 16.60% | -13.29% |
| ROE | -2.83% | 53.38% | -39.06% |
| Operating Cash Flow | 70.66M | N/A | 5.88M |
| Dividend Yield | N/A | 4.10% | N/A |
| Short Position | 7.80% | 6.20% | 7.80% |
Let's take a look at some more important numbers prior to forming an opinion on this stock…
T = Technicals Are StrongWebMD has outperformed its peers by wide margins year-to-date.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| WBMD | 26.09% | 107.3% | 38.36% | -37.44% |
| CPSI | -4.62% | 4.65% | -4.10% | 29.67% |
| MRGE | 3.12% | 33.60% | 24.53% | 36.93% |
At $29.72, WebMD is trading well above its averages.
| 50-Day SMA | 24.92 |
| 200-Day SMA | 19.18 |
The debt-to-equity ratio for WebMD is weaker than the industry average of 0.50. This is one of the few negatives for WebMD at the moment. It is hopeful that new management can make an improvement.
| Debt-To-Equity | Cash | Long-Term Debt | |
| WBMD | 1.55 | 999.22M | 800.00M |
| CPSI | 0.00 | 17.50M | 0.00 |
| MRGE | 3.43 | 45.30M | 250.26M |
Annual earnings have been inconsistent, but based on current guidance, WebMD should be headed back in the right direction.
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in billions | 0.373 | 0.439 | 0.535 | 0.559 | 0.470 |
| Diluted EPS ($) | 5.88 | 2.07 | 0.88 | 1.25 | -0.40 |
When we look at the last quarter on a year-over-year basis, revenue and earnings have both improved.
| Quarter | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 | Dec. 31, 2012 | Mar. 31, 2013 |
| Revenue ($) in billions | 0.107 | 0.113 | 0.118 | 0.133 | 0.113 |
| Diluted EPS ($) | -0.14 | -0.11 | -0.02 | -0.1241 | -0.03 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Support the Industry
With baby boomers retiring in droves, there is going to be a significant increase in the need for health information. This simple fact should lead to a strong industry in the coming years.
Conclusion
WebMD is making all the correct decisions and looks to be heading in the right direction. With trends supporting the industry and new management in place, WebMD is a long-term OUTPERFORM.
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