Analyst lowers HMS Holdings rating to 'Perform'

HMS Holdings Corp. could face a delay or loss of a key government contract, and that risk may be underappreciated by investors, according to an Oppenheimer analyst who lowered his rating on the stock.

THE SPARK: Last fall, the Centers for Medicare and Medicaid Services awarded a contract to New York-based HMS to coordinate benefits and to ensure that Medicare is only paying when it is the primary form of coverage.

A privately held company that was competing with HMS for the contract filed an appeal protesting the decision.

THE BIG PICTURE: HMS coordinates benefits and performs billing audits for government health care programs. It works on Medicaid, the state-federal program that covers the needy and disabled; and Medicare, the federal program that covers the elderly and disabled patients.

THE ANALYSIS: Analyst Bret Jones said in a Monday research note he is concerned about the ability of HMS to meet the low end of its revenue guidance, which assumes the Medicare contract starts next month.

"At a minimum, we believe the contract start will likely be delayed and the risk of the award being overturned is greater than the market anticipates," Hones said.

The analyst also noted that the company's share price has grown considerably since the company reported disappointing third-quarter earnings last fall. He lowered his rating on the stock to "Perform" from "Outperform."

A spokeswoman for HMS Holdings did not immediately return a call from The Associated Press seeking comment on the contract.

SHARE ACTION: Down 2.9 percent, or 82 cents, to $27.48 in Monday afternoon trading, while broader trading indexes were largely flat.

The stock price briefly dipped below $21 on Oct. 26, after the company said its third-quarter earnings dropped 27 percent on higher costs.