amsg buy

BUY

Recommendation

Evan Sieg

Evan Sieg

Student Research

.

Important disclosures appear at the back of this report

Industry: Healthcare

Sector: Facilities Services

52 Week Price range

Average Daily Volume

Beta

P/E

Shares Outstanding

Market Capitalization

Institutioanl Holdings

Insider Holdings

Debt to Equity

31.86M

2.24B

72%

11%

0.79

Market Profile (as of 10/26/14)

$40.00-$54.48

398,321

1.14

22.33

Ticker: AMSG (NASDAQ) Recommendation: Buy

Price: $ 50.38 (as of 10/24/2014)

Price Target: $63

Undervalued by: 24.8%

Earnings/Share Mar. Jun. Sep. Dec. Year P/E Ratio

2011 $0.38 $0.38 $0.43 $0.44 $1.64 18.07

2012 0.48 0.51 0.50 0.54 2.03 19.01

2013 0.57 0.59 0.53 0.62 2.32 15.62

2014E* 0.54 0.68 0.75 0.90 2.87 16.72

2015E 1.04 1.13 13.28

*Bolded/italicized figures are estimates

Highlights

Strong Acquisition Pipeline: AmSurg has great history of making positive acquisitions to increase their

top and bottom line growth. Recently they just finalized their largest acquisition yes of Sheridan

Healthcare, which is their first move to a diversified portfolio. Both of these companies will have ample

FCF in the following to quarters to continue their acquisition growth and expand their coverage.

Largest In a Highly Diversified Industry: AmSurg is the largest operator of ASC’s in the industry and

only maintains a 3% market share. Because of their potential for growth in this industry, and cost leading

advantage of their structure they are able to take advantage of this fragmented industry choosing new

centers in markets of interest to add to their portfolio. Historically they have grown their centers in

operation by 10% annually, there is expectations that should growth should continue independently of the

Sheridan deal and tis own acquisition targets and goals.

Growing Demand: AmSurg is positioned to capitalize on the aging population, and increasing number

of insured Americans under the Affordable Care Act. As the need for health services rise, AmSurg will

see a growth in their top line revenue, as well as in same center procedure growth.

SG&A Leverage and Margin Expansion: AmSurg has significantly higher profit margins when

compared to the industry. We expect to see continued margin expansion because AmSurg has put an

emphasis on lowering their SG&A leverage. Along with the synergies as a result of the Sheridan

integration.

Stock Valuation: Due to their national presence, strong margins, and potential opportunities for market

share penetration, I estimate that Amsurg stock has an expected return of 10.5%. Further, AmSurg is

undervalued by approximately 20% with a fair value of $62. The total return suggests that it is an

attractive buy.

Source: Yahoo! Finance

Date: 10/29/2014

Source: Yahoo! Finance

10/30/14 CFA Society of Orlando

Stetson University Student Research

2

Exhibit 1: The Company

Exhibit 3: Industry Revenue (in millions)

Source: U.S. Census Bureau

Exhibit 2: Revenue Breakdown After

Sheridan Integration

Source: Investor Presentation

Business Description

Company: AmSurg Corp. (NASDAQ: AMSG) acquires, develops and operates ambulatory surgery centers

in partnership with physicians. Headquartered in Nashville, Tennessee, AmSurg operated 242 centers at

December 31, 2013. By focusing on the delivery of high quality, low cost surgery services that create high

patient and physician satisfaction, AmSurg Corp. creates value for the three constituencies involved in every

surgical procedure: the patient, the physician and the payer. Despite the fact that AmSurg is the market

leader, its market share remains relatively low. This suggests that the Healthcare Facilities Industry is

significantly fragmented, posing substantial room to grow. Historically, AmSurg’s revenue breakdown has

consisted purely of revenue from their ambulatory care centers, since the acquisition of Sheridan Health

though they now have fragmented revenue breakdown

Sheridan Health Care: It is important to bring to light the business that Sheridan healthcare is operating, as

it will be referenced in short throughout the following analysis. Sheridan is one of the leading providers of

healthcare solutions for anesthesiology and other specialties to physicians, hospitals and outpatient centers.

Physician led and managed, Sheridan provides comprehensive hospital-based clinical and management

solutions for anesthesia outsourcing and other specialty areas including emergency medicine, children's

services and radiology. These services will pair with AmSurg’s existing ASC network, and health service

joint ventures to capitalize on the best in class services that each company now offers.

Growth Strategy: AmSurg’s strategies for growth:

Acquisition Growth: AmSurg historically has focused on adding centers to its portfolio. On average

year over year this has been 7 centers, with an addition to revenue of 7% annually. This summer AmSurg

made its largest acquisition to date purchasing Sheridan healthcare for $2.35 Billion. This acquisition is

expected to be 15% accretive to earnings in the following years, and also is the first move to a diversified

field of operation away from ambulatory service centers.

New Contract Growth: AmSurg has been working to strengthen their new contract growth number for

the past two quarters, raising their sales team numbers by over 100%. This along with the new Sheridan

line of business should allow for a higher than previously experienced new contract growth rate.

SG&A Expense Cutting: To increase bottom line growth through improvements to efficiency, AmSurg

has focused on reducing compensation, overhead expenses, and sales costs. Further, the company seeks

to optimize its ASC portfolio to fall in line with industry demand. This has translated into a lowering of

SG&A margin to below the targeted level of 33%.

Retention and Same Contract Growth: Amsurg is estimating a growth in same contracts under the

AmSurg brand in the following two quarters, this along with their 94% customer retention allots for their

stable growth profile. Pulling Sheridan’s new product mix in, as well as its existing relationships with

hospitals there is potential for growth in those retained relationships through cross promotion.

Competitors: AmSurg currently does not a have prime comparable other than the industry/sector indexes.

Because of its size and geographical coverage there historically has not been a true pure play comparable.

With the Sheridan line of business as well, it will be increasingly difficult to find a comparable competitor,

and because of such we will reference the benchmarks regularly for comparables.

Industry and Peer Group Overview

In the Healthcare Facilities Industry, companies provide care and services to patients in varying areas of

medicine. This is a significantly fragmented industry comprised of more than 600,000 centers nationwide

in the ambulatory service center designation. The majorities of centers are privately held by physicians

and operate on a small scale model. There is also competition for procedures from the traditional

hospital setting.

The Health Care spending in the U.S. rose 3.7% in 2012 to 2.8 Trillion, just under nine thousand dollars a

person. This trend is expected to maintain throughout the following decade with an average rate of 5.7%.

The affordable care act and an aging population are expected to drive faster projected growth in health

spending in the following years. The year is expected to close with 5.6% growth over 2013, as more

Americans have access to healthcare and economic conditions continue to improve.

Headquarters

Year Founded

No.of Employees

No. of Centers

1992

4,100

239

Nashville, Tennessee



3

Exhibit 6: Procedures Performed Growth

AmSurg vs. Industry

Source: Company 10-Q, and Bloomberg

Source: Company Annual Report, AHA ChartBook

Exhibit 5: ASC Center Growth

Exhibit 4: Percentage of Uninsured

Americans, Outpatient Visits

Source: Gallup Polls, AHA ChartBook

Health Care Reform: In the U.S. Market there has been an upheaval in the current healthcare market place.

Through the implementation of the Affordable Care Act under President Barack Obama. The Intention of

this new healthcare initiative is to bring access to affordable healthcare to all Americans. The legislation in

its full form requires that all Americans have health insurance coverage either through their employer, a

public program such as Medicaid or Medicare, or by purchasing coverage from a state-based health insurance

exchange. As well as requiring that all Americans carry health insurance, it prevents Health Insurance

agencies from denying coverage to those with pre-existing conditions, dropping coverage of people that

become sick, or charging premiums to those with certain illnesses. This is important to note that these new

regulations on health plans have large implications on their bottom line as they will have to cover those that

have a higher health care coverage cost. There has been debate on how carriers will handle this new cost

through either distributing it across their entire book of insurers, or begin new policies on treatment practices

and payment. The bill also requires that large employers with over 50 employees you are required to offer an

affordable care plan that is partially sponsored through the company beginning in 2015. This is anticipated to

drop the number of uninsured Americans below 15% in the year 2015. The law carries out further plans in

2016 as well with target number of uninsured in the single digits, this is anticipated to drive demand for

healthcare to all-time highs, we have already seen the effects in the percentage of GDP that is accounted for

in healthcare spending rising from 16% to a projected 18.5% in 2016.

Result: The effect of the higher number of insured on the health services will be an increase in demand from

a raise in health care demanders. Along with impact on insurers margins from the new restrictions should

drive more patients to lower cost providers such as outpatient, and ambulatory service centers.

Growing Industry Demand

Specific to the Ambulatory Service Center industry there has been an upswing in demand, as the market

demands lower cost alternatives. This is becoming a larger driver as the Affordable Care Act puts pressure

on insurers and lowers their margins by requiring them to accept non-favorable clientele. The number of

uninsured is expected to drop by fifty percent in the coming years, which will put an immense pull on the

health care servicing industry to treat these new customers.

Competitive Positioning

National Presence

In the past, the Health Facilities industry has been highly fragmented, and still is in many cases. AmSurg is

capitalizing on this fragmentation with their strong national presence that has expanded with the purchase

Sheridan Healthcare. Their strong presence allows them to lower overhead cost at the individual center level,

by pushing certain tasks to the corporate level, leveraging their size in their favor. This has also allowed

them to make favorable moves in joint venture opportunities with other health service providers to better

diversify their contract customers.

Clarity to Increase Top Line Growth: With the growing pressure on insurance companies, clarity in pricing

is becoming a growing concern. It is predicted that within the next two years private health coverage

organizations will begin to dictate which facilities their insured may go to for certain procedures. Medicare

and Medicaid are not legally allowed to direct their patients to certain centers. When insurance companies do

make the decision to change policy to promote one facility over another AmSurg should be a preferred

choice. Because of AmSurg’s cost efficiency they are properly positioned for when insurers are forced to

allocate their insureds to certain providers. Management is confident that their structure is more than ready

for this transition to a buyers’ market of health services.

Shared Costs to Boost Profitability: As AmSurg and Sheridan finalize their integration they will be able to

share in each other’s overhead expenses, lowering the overall margin spent on accounting, marketing, etc.

This vertical integration will in most part be in the anesthesiology department of their centers. The benefit of

moving the anesthesia in house is it lowers the cost over all and ensures that they will be able to supply all the

centers that need anesthesia services. The combination of the shared overhead, vertical integration, and the

possibilities for cross promoting across business lines gives them an opportunity to increase revenue at a

lower cost. Boosting the profitability of the company as a whole.

Procedure Growth: Year over year AmSurg has been able to service more patients, increasing the

efficiency of their centers to handle on average 2% more procedures a year along with acquiring new

facilities. AmSurg has year over year been increasing the number of procedures they perform, while the

market has in fact been performing less surgeries as a whole. Exhibit 5 depicts the growing spread in

procedure growth AmSurg has over its industry. This level of operational efficiency is pertinent in maintain

the margins that AmSurg has been maintaining since the recession. Sheridan also has potential for growing

Estimates



4

Exhibit 8: Average Revenue Contribution

Per Procedure

Source: Company Annual Report & 10Ks

Exhibit 7: Health Care Spending

GDP

Source: CMS

the number of procedures the current ASC’s can handle yearly with their expertise in health service

management.

Same Store Sales

Organic Growth: Organic growth is an important metric because of its importance if the opportunity for

acquisitions ceases to exist. This highly unlikely scenario because of the highly fragmented industry that

AmSurg functions in, would allow AmSurg to continue to receive its organic growth rate of 4-6%. This

comes from a combination of current contracts expanding, and new contracts the company receives

across the year.

Outlook: The industry sales are positively affected by GDP growth and number of insured, I am

generally positive about the overall outlook of the industry for the next few years due to healthier

economic forecasts, which outweigh the uncertainty of healthcare legislation changes.

Market Share

Fragmented Industry: AmSurg’s mainline of business is the ambulatory service industry which is

outpatient care centers for different specialties. This industry is extremely fragmented at the national level,

AmSurg has the highest market share of approximately 3%. This is a positive attribute for AmSurg because

of their growth through acquisition as long as the market remains highly fragmented they are able to choose

targets in areas that attract them with relative ease.

Expansion through Economic Recovery: Since the recession we have as nation seen an increase in health

care spending, in the amount of 5% average YOY. This increased spending has allowed AmSurg to

continually reinvest in to their business and profit from maintaining new centers. As this trend continues we

can expect to more top line growth as more Americans are having preemptive screenings done.

Geographical Growth: AmSurg has its strongest market share in states such as Florida, Texas, and

California. Outside of these three states, there is substantial growth to be seen in rising markets, where

market share is lower. As AmSurg first moves Sheridan Health Care into its current markets, and then makes

the transition to operating more ASCs in Sheridan dominated markets, there is great potential for

geographical growth. AmSurg covers fourteen more states then Sheridan Health Care as of Q2, and these are

all grand opportunities’ to move Sheridan into new markets, and rive new contract growth through new

market exploration.

Investment Summary

Branding Strategy: In an effort to enhance brand recognition and loyalty, AmSurg has moved to a national

brand strategy. Previously, the ambulatory care service market has been highly fragmented with many

centers being owned by the physicians who run them. The AmSurg brand has promoted the outpatient care

industry. Promoting universal brand recognition puts AmSurg at the forefront of customers’ minds and

ensures a consistent branding identity. As a result, the company will see positive growth through repeat and

referral patients. This is especially prudent with the increasing amount of transparency the healthcare

industry is being forced under. The branded house strategy also allows AmSurg to reduce its marketing and

advertising costs because it does not require individual ads for each of its local centers. The name is

recognized by health professionals; along with the acquisition of the Sheridan Company as well these two

brands make for a potent combination in the patient and health-service servicing market.

Acquisition Pipeline: AmSurg has a strong history of increasing revenue, and in turn earnings through the

acquisition of ASC’s and other smaller firms operating in their sector. This has accounted for a historical 7%

growth in revenue. This practice has brought AmSurg to be the largest operator of ASC’s in the country and

allowed them to maintain their strong growth year over year. The acquisition of Sheridan Healthcare was the

first step away from the ambulatory service center, differentiating their revenue to include physician

placement. This wider scope of services will allow for growth in both previously independent companies

through synergy potential in their offerings. In the year to come, 2015, each company is recognized to

continue their investment into acquisitions in the total of $200 million, reinforcing their acquisition growth

predictions.

Seeing More Patients with Higher Margins: Benefitting from the national recognition in exceptional care,

AmSurg is able to generate favorable brand recognition. This gives them the ability to pull in more referrals,

and see more patients. In previous years, AmSurg has been able to maintain a 21% higher NI margin than the

industry. During this time, they have also been able to increase the quantity of quantity of patients treated by

2% over last year. This is evidence of their superior branding power resulting from the national structure.



5

Source: Company 10-Qs

Exhibit 9: Gross Margins

Industry Growth and Demand: The Health Care Industry is poised for growth in the future. With the roll

out of the affordable care act, health care coverage is now available to millions more Americans. Since the

recession, the industry has experienced positive growth with an improving economy contributing to its

growth. The Industry also profits from demand which can now be realized because of the larger number of

insured Americans. As consumer spending on healthcare continues to increase year over year, 9% since

2011, the drive for more affordable care will rise. Ambulatory Service Centers are best poised to capitalize

on this industry growth, because of their availability to provide better service at a lower cost because of their

structure. With these assumptions we can expect the increase of revenue seen in AmSurg’s topline to

maintain at a minimum their 6% organic growth.

Geographical Market Share Growth: Health Care Industry and more specifically ambulatory care centers

are characterized by significant fragmentation. While AmSurg is the largest operator of freestanding centers,

it has a market share of 3.6%, mainly concentrated in Florida, Texas, New Jersey, Maryland, and California.

. AmSurg’s Strong branding strategy will allow them to penetrate the untapped markets. In particular, the

acquisition of Sheridan Healthcare moves them into 4 more states, as well as increasing their current standing

in their current markets. As well as the potential to move Sheridan into 13 new markets that it currently is

not operating in.

Attractive Valuation Indicates a BUY: The various valuations we performed reveal a consensus that

AmSurg stock is undervalued. Our fair value estimate is around $62, which suggests an undervaluation of the

current stock price by 22%. Furthermore, AmSurg currently enjoys being the largest operator of ambulatory

care centers in the industry. The easiest way for individuals to invest in this business model is to buy

AmSurg stock.

Financial Analysis

Revenue Growth

Since 2010, AmSurg’s revenue has shown to outpace industry growth, with an average of 12.9% per year

versus the 6.6% of the Health Care Facilities industry. The company’s growth is a result of 6% organic

growth and 6.9% acquired growth. Looking forward, I broke the company’s future revenue growth

estimates into three categories: (1) economic/industry growth, (2) demand growth, and acquisition

growth.

Acquisitions Contributing to Top Line Growth: AmSurg historically adds 6-10 new centers every year.

These centers for the most part are previously run by either independent physicians or physician co-ops.

AmSurg is able to purchase these centers from the physicians and bring it under their governance, and lower

cost. Often times leaving the original physician in place, which has contributed to their industry leading

retention ratio of doctors at 93%(3). With each new acquisition AmSurg recognizes a growth in revenue. It

is through this high level of effective acquisition that has put AmSurg at the top of its industry, and given it

one of if not the strongest pipeline for acquisitions. AmSurg has a background of making large gains

through acquisition, and the latest deal made on Sheridan has been one more to add to the list. The

Sheridan business nearly doubles their expected revenue in 2015. Both organizations expect to

continue their spending on acquisitions in the quarters to come as well. AmSurg historically has

realized a 7% top line growth from acquisitions year over year, and it can be expected that Sheridan

will continue with similar results under AmSurg management. The expected spending on acquisitions

for the following quarters is $50 million, to paid from FCF.

Sheridan Acquisiton Contributing to Revenue Expansion: Management is expecting to achieve synergies

in the first twelve months with Sheridan on books in excess of $30 million, with $10 million in in cost and

operational synergies as well. The new revenue areas to AmSurg that come from Sheridan Healthcare will

also promote growth in their operating margin. The biggest factor of margin growth as a result of this

acquisition is the possibilities for vertical integration of certain specialist that AmSurg centers previously had

to go out of house for. As well as across both business units integration of certain operations such as sales,

accounting, and financing reducing the total combined overhead of the two companies.

Economic/Industry Effects: The health care facilities industry historically shows a two month lag in relation

to GDP with expected GDP to rise we can expect to see an increase in health care facilities revenue. Also the

impact of the affordable care act should be favorable, as the industry sees more people insured, this should

result in more patients seeking care. The fact that many carriers are now having to control cost as much as

possible has also led to the thought of carriers making requirements that their patients use more affordable

options that do not sacrifice care, such as ambulatory care of hospitals. Amsurg in the last quarter alone

recognized a 1% increase in same center revenue.



6

Exhibit 10: Operating Margins

Exhibit 11: Earnings Surprise



Demand Growth: As the baby boomer population ages the need for certain services rises

appropriately. With gastrointestinal, and optometry being two areas of high potential for growth as

insurance carriers begin to require prescreening in these two areas for preventative care . Baby Boomers

represent approximately 76 million Americans in the population today, as this population continues to

age their need for medical care rises, increasing the demand for centers that can cater to the needs and

wants of this generation. This growing population of elderly citizens, along with growing number of

insured Americans as whole is anticipated to have an impact on demand that could drive it above

current capacity. AmSurg is designed in such a way that they will be able to capitalize on this demand

for health care needs. Through this large generations aging, the rise in insured participants in the

marketplace, and the rising need for insurers to lower their cost ambulatory care centers are expected to

outpace the healthcare sectors growth in the long-term.

In summary, AmSurg can expect to receive at a minimum a 13% revenue growth as a result of their

market positon, and acquisition targets. .

Profitability

AmSurg has been a leader in market efficiency since inception. Their average annual net income

margin grosses 20% nearly seven times the industry average. As AmSurg continues to grow their

revenue stream their above industry average profitability makes them very desirable from an investor’s

viewpoint.

Gross Margin: AmSurg has seen a decrease in their gross margin since 2009 of 2%, but with a gross

margin of 85% they have room. The industry average is 29%, AmSurg is outperforming the industry by

55 points. This highlights AmSurg’s premier cost efficiency. Expectations with the Sheridan

acquisition are that there should be moderate gross margin expansion in the quarters to come. Through

cost synergies between the two companies, the next two quarters though will not show this expansion

because of the delay in operational efficiency.

Net Income Margin: AmSurg has a market leading Net Income margin. While the industry experiences

single digit profit margin. AmSurg nets over 20%, this is a result of their low cost structure, and

efficiency. They have promoted this growth by bringing Sheridan Health into their corporation, by

leveraging Sheridan’s business with their own they expect a 15% accretive gain to earnings. In the

following quarters my expectations are that the net income margin will dip following the huge purchase

of Sheridan Healthcare, incurring the interest expense, and the adjustments to operations. This short -

term dip will be offset by the long-term potential the two organizations share together.

Falling SG&A Leverage: In an effort to improve profit margin and promote growth, AmSurg

management has lowered and maintained its SG&A leverage at below 30%. This is a primary focus for

Amsurg, by keeping cost low they are able to better capitalize on the set payouts of certain payer groups.

With 24% of their payer break-down being Government payers, it is essential to be able to minimize cost

to benefit from the high traffic in this area. The acquisition of Sheridan Healthcare will further there goals

to cost minimization in their operating ASC’s by vertically integrating their anesthesiologists which were

previously outsourced to other companies. Management is predicting a cost synergy of $ 10 million in

2015.

Return on Equity: AmSurg is currently trailing the industry with a 10% ROE where the industry has

11%. AmSurg has been closing spread since 2010 when it had an unimpressive ROE of 8.5%. As

AmSurg continues to capitalize on their industry leading margins, and growth we should see this

improve.

Sheridan Effects on Margins: Management is expecting to achieve synergies in the first twelve months with

Sheridan on books in excess of $30 million, with $10 million in in cost and operational synergies as well.

The new revenue areas to AmSurg that come from Sheridan Healthcare will also promote growth in their

operating margin. The biggest factor of margin growth as a result of this acquisition is the possibilities for

vertical integration of certain specialist that AmSurg centers previously had to go out of house for. As well

as across both business units integration of certain operations such as sales, accounting, and financing

reducing the total combined overhead of the two companies. Earnings

AmSurg has developed a reputation for regularly beating earnings. Through its acquisitions and organic

growth, AmSurg has been able to maintain stable earnings growth year over year coming out of the

Recession. Since 2011, EPS has been growing year over year an average of 14%. Looking forward, I am



7

Exhibit 12: Sales per SG&A Dollar

Source: Company 10-Qs, Reuters

optimistic in terms of earnings growth due to strong expected growth in the industry and the company’s top

line, as well as a reduction in general operating expenses.

Pro Forma: Based on the assumptions that (1) the company revenue will grow between 11-14% in 2014, (2)

the gross margin will be between 85-86%, (3) the SG&A leverage will remain in the low 30%, we estimate

the Q4 2014 Q3 EPS to be $0.75, beating earnings estimates of $0.66. For the fiscal year 2014, EPS is

expected to be $2.80, a 17% increase from 2013. Keeping with this upward trend, earnings are expected to

grow by an average of 21.33% per quarter through to second quarter of 2015. Following previous sections,

for 2014, we attribute 13.75% of EPS growth to revenue growth and 7.58% to margin expansion.

Efficiency

Sales per SG&A: AmSurg’s revenue growth is outpacing its SG&A, as demonstrated by its rising sales per

SG&A dollar. Historically AmSurg has been able to produce three times the revenue for every dollar spent

on SG&A over their industry, and nearly fifty percent more than their closest comparable with HCA

holdings. In recent years in fact AmSurg’s supreme efficiency model has allowed them to stretch the margin

between their SG&A per dollar of sales away from HCA. This has accounted for bottom line growth as they

roll their operational platform out across new markets and acquisitions. By maintaining its lower SG&A

costs relative to its competitors, AmSurg is able to use its higher efficiency to grow its bottom line.

Sheridan Integration: The integration of Sheridan Healthcare’s top in class products into AmSurg’s current

market place allows them to cross market more efficiently than their competitors. Sheridan’s largest revenue

contributor is their anesthesia branch, which is the biggest highlight in the integration of the two companies,

as anesthesia outsourcing is one of the highest costs at AmSurg’s center now. By vertically integrating they

will be able to drive these costs down, raising the margin on procedures. As well as merging the two firms

sales teams, allowing them to promote both businesses simultaneously as AmSurg poises for the move into

servicing the Health Service industry (Hospitals).

Cash Flow

Total Net Cash Flow: Due to the high growth in revenue, AmSurg has experienced cash from operating

activities growth in double digits year over year since the recession. They also have strong depreciation

growth as the amortize more centers and acquisitions. In 2013 they used this excess cash to buy back $11.5

Million in stock. And pay down nearly forty million in outstanding debt. These show that the company is

positioning itself to provide more value to the shareholders.

Free Cash Flow: AmSurg had free cash flow in 2013 of $304 Million. They recognized $333 million in

operating cash flow, with $29 million spent on capital expenditure. The expected free cash flow for the

2014 fiscal year is expected to rise above last year’s reporting with an increase from Sheridan’s cash

flows. A more relevant measure of cash flow is free cash flow, which is operating cash flow after capital

expenditures. Since 2009, AmSurg has generated an average free cash flow exceeding $210 million. This

Free cash flow is what is for the most part used to purchase new centers, and in the coming quarters we

should expect to see the same amount of FCF spent on acquisitions as historically can be seen. In Q3 we are

expecting a surge in free cash flow from the Sheridan line of the business. As Well as long term benefits to

free cash flow as result of the integration of Sheridan. Looking forward, I expect free cash flow to continue

to increase at an annual rate around 15-18%. Thus, free cash flow will be in the $400 million range in 2014

and $550 million in 2015.

Q2 Q1 Q4 Q3 Jun-2014 Mar-2014

Revenue 1672.4 1311.7 1028.7 576.3 281.1 263.1

Other Revenue, Total 230.5 -- --

Total Revenue 1673.6 1442.9 1183.0 806.9 281.1 263.1

Cost of Revenue, Total 224.0 193.1 158.3 108.0 41.3 38.7

Gross Profit 1449.6 1249.7 1024.7 698.9 239.8 224.4

Selling/General/Admin. Expenses, Total 412.1 404.1 316.9 177.5 84.9 83.2

Depreciation/Amortization 54.9 43.1 38.8 23.9 8.6 8.4

Other Operating Expense 404.7 272.6 208.8 114.8 60.3 55.3

Total Operating Expense 871.8 719.7 564.5 316.2 193.1 182.7

Operating Income 577.8 530.0 460.2 382.6 88.0 80.4

Interest Expense, Net Non-Operating -6.9 -6.9 -6.9 -6.9 (6.9) (7.0)

Other, Net -- --

Net Income Before Taxes 570.94 523.12 453.34 375.73 81.1 73.4

Provision for Income Taxes 49.59 45.44 39.37 32.63 12.9 13.1

Net Income After Taxes 521.35 477.69 413.97 343.10 68.2 60.3

Eps 1.13$ 1.04$ 0.90$ 0.75$ 0.68$ 0.54$

20142015



8

Free Cash Flow/EBITDA Conversion Margin: In an effort to measure earnings quality and liquidity, we

examined the free cash flow/EBITDA conversion margin. A high ratio would suggest that more cash flow or

liquidity flows through the same dollar earnings, and, thus, the quality of earnings is better. AmSurg has

maintained their high quality of earnings since the recession turning over 30% of their EBITDA to FCF

annually.

Debt

The majority of AmSurg’s debt profile is comprised of loans. Their debt to equity ratio at the end of the

2013 fiscal year was .79, this is .24 above the industry median. This increased leverage is a result of

their predominant acquisition culture. With their high debt ratio though, they still maintain an interest

coverage ratio above 11

Debt to Equity: Currently, AmSurg has $2.6 billion in bonds outstanding, and $3.2 billion in long-term debt

outstanding. Compared with the Peer Group, AmSurg carries a significantly higher amount of long-term

debt. In 2013, AmSurg’s debt to equity ratio was 1.5x their Peer Group. Normally, this difference in debt

levels would be of concern. However, this is a natural result of their business model focusing on long-term

expansion through acquisitions. The Sheridan being a driver of their debt expansion, with $2.1 billion loan

being taken out in the summer of 2014 to cover the cost of the acquisition and buy back a piece of the equity

offering to lower Hellman & Friedmans stake in AmSurg below 10%, when it was originally proposed to be

upwards of 25%. Along with taking over the debt that Sheridan Currently has outstanding.

Debt to EBITDA: More importantly, it is informative to look at AmSurg’s debt-to-EBITDA ratio because it

shows the amount of time it will take the company to pay off its debt. Amsurg’s current debt to EBITDA is

1.54, compared to the industry’s 1.61. The debt to EBITDA suggests that the company is more capable of

paying its debts compared to their peers. This is beneficial when evaluating the company’s credit worthiness,

the fact that AmSurg even with their high debt to equity ratio has the earnings to cover their debt better than

their peers is what sets them apart.

Solvency: Amsurg’s first bond to mature will be in 2017 with a value of $176 million. Based on free cash

flow estimates, AmSurg should be able to cover this bond with an excess of $200 million. This exemplifies

the strong positioning of AmSurg’s capital structure. With the Free Cash Flow growth expected from

AmSurg in the coming years, there are no expectations that they will not be able to cover their debts.

Valuations

In this section, we estimate the fair values of AmSurg’s stock. It should be noted that all input data were

derived from historical company data and pro forma estimates (Exhibit 35).

Holts Model: .The Holt’s model a relative P/E model was used to determine AmSurg’s value relative to its

industry, and the companies leading competitor. This is a relevant model as AmSurg operates in an

industry with little differentiation between service providers other than operating efficiency. Using this

model I compared AmSurg to the Health Care Facilities industry, and HCA Holdings. The industry has a

P/E of 19.7 and a street estimated growth of 11% along with a dividend yield of 1.5%. When compared

directly to the industry AmSurg yields a fair price of $67.21. When Compared to HCA Holdings which has

a P/E of 18.5, growth estimate of 12%, and pays no dividend; Amsurg is valued at $63.37. The culmination

of these values suggests that AmSurg is currently undervalued in excess of 22%

Franchise Value Model: The franchise value model is used to evaluate the return associated with a future

expansion of the firm. For this calculation we assumed that the return of the new business would exceed

the required rate of return of the firm. This is an applicable model as AmSurg often purchases centers to

add to their portfolio and implements their current business model at a lower cost. With a return of 19%

on new business, and a growth rate of 16%, an adjusted k of 17.31%, and BPS of $32. This model

yielded a fair price of $62.02, implying an underpricing of 23%

Residual Income Model: The residual income model values a firm using current book value per share and

the present value of expected future residual income. This model is relevant for evaluating AmSurg because

of the Using a more pessimistic prediction for future growth of 13%, a required rate of return of 15.74%,

ROE 18%. The fair price is $61.08, which suggests an undervaluing of 22%.

Average Fair Value: The summary estimates a fair value of $62, undervalued by 24%, which is derived from

the combined simulation results. This information represents a strong positon to BUY AmSurg.

Investment Risk



9

Risk that Payers Rates do Not Increase: There is always the potential that third party payers such as health

insurers or government agencies do not raise their payment rates enough to cover the expansion in cost. This

could lower the margins that AmSurg experiences on their income statement. This year though we saw a

remarkable increase from Medicaid rates north of 7% in some of the most predominant services Amsurg

maintains including GI and Optometry. These rate increases alone are expected to yield an increase in

revenue by 2% for AmSurg. There is little AmSurg can do to hedge for this risk as the majority of health

care insurers have set rates they pay for procedures. Through their high cost efficiency design though

AmSurg is best prepared for this rate stagnation as compared to their industry.

Cost of Acquisitions Rise Unfavorably: AmSurg’s growth is dependent on the availability to make

acquisitions of new centers, which are favorable in their strategic vison. If the marketplace becomes to

competitive they could see the cost of these centers rise to unacceptable levels, lowering their availability of

growth to be purchased. With the ASC market as it currently stands being so highly fragments, with AmSurg

being the largest market share holder with only 3%, it would take a major turn in events for this to be of

serious concern to AmSurg. At its current design the availability of centers to be acquired is monumental

with the physician co-ops becoming one of their favorite acquisition targets.

Legislation Changes: The Healthcare services industry has been a hot debate topic in the political

atmosphere as of late, and with that comes uncertainty. If lawmakers where to change the healthcare

industry to a fully governmentally ran, or change the laws that apply to AmSurg’s market, the effects could

be profound. With the passing of the Affordable Care Act the largest health care reform in years, we have

seen the public’s distrust in government interference. Because of this the only change that currently is

measurable risk are the reforms directing government paid health plans, but as mentioned above this has been

favorable as of recent developments, and with Sheridan’s contracts now servings AmSurg we see the

percentage of revenue from government payers drop from 25% to 20%.

10

Table of Contents

Appendix 1A: Income Statement and Pro Forma 10

Appendix 1B: Balance Sheet 11

Appendix 1C: Statement of Cash Flow 12

Appendix 2: CAPM 13

Appendix 3:Franchise Value Model 14

Appendix 4:Residual Income Model 15

Appendix 5: Holt’s Model 16


Appendix 1A: Historic and Pro Forma Income Statements Source: Estimates

.

1. The percentage of cost of sales for each product is determined by the SAAR of four quarters ago.

2. The Q3 results of 1014 is the first quarter to reflect the Sheirdan Health Care acquistion

Q2 Q1 Q4 Q3 Jun-2014 Mar-2014

Period End Date 30-Jun-2014 31-Mar-2014

Revenue 1672.4 1311.7 1028.7 576.3 281.1 263.1

Other Revenue, Total 230.5 -- --

Total Revenue 1673.6 1442.9 1183.0 806.9 281.1 263.1

Cost of Revenue, Total 224.0 193.1 158.3 108.0 41.3 38.7

Gross Profit 1449.6 1249.7 1024.7 698.9 239.8 224.4

Selling/General/Admin. Expenses, Total 412.1 404.1 316.9 177.5 84.9 83.2

Depreciation/Amortization 54.9 43.1 38.8 23.9 8.6 8.4

Other Operating Expense 404.7 272.6 208.8 114.8 60.3 55.3

Total Operating Expense 871.8 719.7 564.5 316.2 193.1 182.7

Operating Income 577.8 530.0 460.2 382.6 88.0 80.4

Interest Expense, Net Non-Operating -6.9 -6.9 -6.9 -6.9 (6.9) (7.0)

3.309079663 4.057804488 3.246243591 3.246243591 3.246243591 3.31095406 3.16225962

Other, Net -- --

Net Income Before Taxes 570.94 523.12 453.34 375.73 81.1 73.4

Provision for Income Taxes 49.59 45.44 39.37 32.63 12.9 13.1

Net Income After Taxes 521.35 477.69 413.97 343.10 68.2 60.3

Eps 1.13$ 1.04$ 0.90$ 0.75$ 0.68$ 0.54$

20142015

12

Appendix 1B: Historic Balance Sheets

Jun-2014 Mar-2014 Dec-2013 Sep-2013 Jun-2013 Mar-2013 Dec-2012 Sep-2012

Period End Date 30-Jun-2014 31-Mar-2014 31-Dec-2013 30-Sep-2013 30-Jun-2013 31-Mar-2013 31-Dec-2012 30-Sep-2012 Assets ($ Mill ions)

Cash and Short Term Investments 44.9 47.1 64.2 45.5 39.9 42.4 55.2 35.7

Cash & Equivalents 44.9 47.1 50.8 45.5 39.9 42.4 46.4 35.7

Short Term Investments -- -- 13.3 -- -- -- 8.8 --

Accounts Receivable - Trade, Net 110.5 106.2 105.1 104.3 105.3 101.5 96.8 88.7

Accounts Receivable - Trade, Gross 141.0 135.3 132.9 130.8 130.9 125.8 119.1 112.1

Provision for Doubtful Accounts (30.4) (29.1) (27.9) (26.5) (25.6) (24.3) (22.4) (23.4)

Total Receivables, Net 110.5 106.2 111.2 104.3 105.3 101.5 102.7 88.7

Receivables - Other -- -- 6.1 -- -- -- 5.9 --

Total Inventory 18.8 18.4 18.4 18.9 18.3 18.1 18.4 14.8

Prepaid Expenses 34.7 37.2 12.7 29.3 29.3 30.1 11.4 22.1

Other Current Assets, Total 3.4 1.0 4.5 4.4 3.8 1.0 4.5 3.0

Deferred Income Tax - Current Asset 3.4 1.0 3.1 4.4 3.8 1.0 3.1 3.0

Other Current Assets -- -- 1.4 -- -- -- 1.4 --

Total Current Assets 212.3 209.9 211.0 202.4 196.6 193.1 192.2 164.3

Property/Plant/Equipment, Total - Gross -- -- 392.3 -- -- -- 362.1 --

Buildings - Gross -- -- 161.8 -- -- -- 151.3 --

Machinery/Equipment - Gross -- -- 228.2 -- -- -- 208.5 --

Construction in Progress - Gross -- -- 2.3 -- -- -- 2.3 --

Property/Plant/Equipment, Total - Net 168.8 169.0 169.9 168.0 163.4 163.2 166.6 144.6

Accumulated Depreciation, Total -- -- (222.4) -- -- -- (195.5) --

Goodwill, Net 1,794.5 1,764.6 1,759.0 1,738.0 1,675.2 1,647.2 1,652.0 1,250.5

Intangibles, Net 11.0 10.7 10.8 10.9 10.9 11.0 11.0 16.1

Intangibles - Gross 3.4 3.4 3.4 3.4 3.4 3.4 3.4 11.7

Accumulated Intangible Amortization (2.6) (2.5) (2.5) (2.4) (2.4) (2.3) (2.3) (4.9)

Long Term Investments 26.5 19.5 16.4 17.0 16.9 16.9 11.3 11.9

LT Investment - Affi l iate Companies 26.5 19.5 16.4 17.0 16.9 16.9 11.3 11.9

Note Receivable - Long Term -- -- -- -- -- -- -- --

Other Long Term Assets, Total 9.9 10.4 10.9 11.3 11.7 11.0 11.5 --

Deferred Charges 9.9 10.4 10.9 11.3 11.7 11.0 11.5 --

Total Assets 2,223.0 2,184.1 2,177.9 2,147.6 2,074.7 2,042.4 2,044.6 1,587.3 Liabilities ($ Mill ions)

Accounts Payable 26.4 25.4 27.5 22.5 20.9 19.7 23.5 18.3

Payable/Accrued -- -- -- -- -- -- -- --

Accrued Expenses 39.6 38.6 41.5 45.7 35.9 38.2 43.5 34.9

Notes Payable/Short Term Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Current Port. of LT Debt/Capital Leases 20.2 20.3 20.8 21.4 21.7 19.9 17.4 12.3

Other Current l iabilities, Total -- -- -- -- -- -- 0.0 0.0

Income Taxes Payable -- -- -- -- -- -- 0.0 0.0

Total Current Liabilities 86.2 84.2 89.9 89.5 78.5 77.9 84.4 65.5

Total Long Term Debt 556.8 564.9 583.3 599.4 594.4 603.4 620.7 385.7

Long Term Debt 556.8 564.9 583.3 599.4 594.4 603.4 620.7 385.7

Total Debt 577.0 585.2 604.1 620.8 616.0 623.4 638.1 398.0

Deferred Income Tax 194.2 185.9 176.0 165.8 155.9 147.1 137.6 131.6

Deferred Income Tax - LT Liability 194.2 185.9 176.0 165.8 155.9 147.1 137.6 131.6

Minority Interest 555.9 540.9 539.1 527.0 499.9 488.3 486.4 311.0

Other Liabilities, Total 25.7 25.8 25.5 26.2 27.4 26.7 26.0 28.8

Other Long Term Liabilities 25.7 25.8 25.5 26.2 27.4 26.7 26.0 28.8

Total Liabilities 1,418.7 1,401.7 1,413.7 1,408.0 1,356.0 1,343.4 1,355.1 922.6 Shareholders Equity ($ Mill ions)

Redeemable Preferred Stock, Total -- -- -- -- -- -- -- --

Preferred Stock - Non Redeemable, Net 0.0 0.0 0.0 0.0 0.0 -- 0.0 0.0

Convertible Preferred Stock - Non Rdmbl 0.0 0.0 0.0 0.0 0.0 -- 0.0 0.0

Common Stock, Total 189.8 186.9 185.9 180.8 176.7 175.5 183.9 176.0

Common Stock 189.8 186.9 185.9 180.8 176.7 175.5 183.9 176.0

Additional Paid-In Capital -- -- -- -- -- -- -- --

Retained Earnings (Accumulated Deficit) 614.5 595.5 578.3 558.8 542.0 523.4 505.6 488.8

Treasury Stock - Common -- -- -- -- -- -- -- --

ESOP Debt Guarantee -- -- -- -- -- -- -- --

Unrealized Gain (Loss) -- -- -- -- -- -- -- --

Other Equity, Total -- -- -- -- -- -- -- --

Total Equity 804.3 782.4 764.2 739.6 718.7 699.0 689.5 664.8

Total Liabilities & Shareholders' Equity 2,223.0 2,184.1 2,177.9 2,147.6 2,074.7 2,042.4 2,044.6 1,587.3

2014 2013 2012

13

Appendix 1C: Historic Statement of Cash Flows Source: Reuters

1. Free cash flow is calculated as the cash from operations after capital expenditures.

Jun-2014 Mar-2014 Dec-2013 Sep-2013 Jun-2013 Mar-2013 Dec-2012 Sep-2012

Period End Date 30-Jun-2014 31-Mar-2014 31-Dec-2013 30-Sep-2013 30-Jun-2013 31-Mar-2013 31-Dec-2012 30-Sep-2012 Cash Flow-Operating Activities ($ Mill ions)

Net Income/Starting Line 128.3 60.1 261.5 190.4 128.1 62.3 223.6 164.2

Depreciation/Depletion 16.9 8.4 33.0 24.7 16.1 8.0 29.9 22.3

Depreciation 16.9 8.4 33.0 24.7 16.1 8.0 29.9 22.3

Amortization -- -- -- -- -- -- -- --

Deferred Taxes 17.9 11.9 38.4 29.8 19.3 12.9 24.6 18.6

Non-Cash Items (1.2) (1.5) (5.8) (0.2) (0.6) (0.9) 2.3 3.3

Unusual Items (2.8) (1.4) (3.7) (2.2) (2.2) (2.2) (1.1) 0.6

Equity in Net Earnings (Loss) (1.3) (0.8) (3.2) (2.2) (1.1) (0.4) (1.6) (1.1)

Other Non-Cash Items 2.9 0.7 1.1 4.2 2.8 1.8 4.9 3.9

Changes in Working Capital (8.3) (9.1) 5.7 4.2 (10.4) (8.5) 15.3 7.6

Accounts Receivable (6.0) (1.7) (1.3) (1.4) (5.2) (1.7) 8.1 4.8

Inventories 0.0 (0.2) 0.1 (0.3) (0.3) (0.2) 0.1 0.3

Prepaid Expenses (2.3) (3.6) (5.3) (1.0) (2.1) 0.0 (4.7) (0.3)

Accounts Payable (2.4) (3.6) 0.4 (2.8) (2.4) (3.0) 0.6 (2.8)

Accrued Expenses 0.8 (0.6) 6.7 6.8 (2.2) (4.1) 7.6 3.5

Other Assets & Liabilities, Net 1.7 0.6 5.0 3.0 1.7 0.6 3.7 2.0

Cash from Operating Activities 153.6 69.8 332.8 248.9 152.6 73.9 295.7 216.1 Cash Flow-Investing Activities ($ Mill ions)

Capital Expenditures (16.1) (7.0) (28.9) (20.7) (12.5) (6.1) (28.9) (20.8)

Purchase of Fixed Assets (16.1) (7.0) (28.9) (20.7) (12.5) (6.1) (28.9) (20.8)

Other Investing Cash Flow Items, Total (23.7) (4.3) (69.9) (59.2) (18.3) (0.3) (270.1) (16.1)

Acquisition of Business (24.4) (5.0) (73.6) (59.5) (18.3) (0.3) (277.4) (16.1)

Sale of Fixed Assets 2.1 1.1 3.6 0.2 0.0 0.0 7.3 0.0

Other Investing Cash Flow (1.4) (0.4) 0.2 0.1 0.1 0.0 -- 0.0

Cash from Investing Activities (39.8) (11.4) (98.7) (79.9) (30.8) (6.4) (298.9) (36.9)Cash Flow-Financing Activities ($ Mill ions)

Financing Cash Flow Items (90.4) (40.9) (178.2) (136.4) (90.5) (43.1) (169.1) (123.6)

Other Financing Cash Flow (90.4) (40.9) (178.2) (136.4) (90.5) (43.1) (169.1) (123.6)

Total Cash Dividends Paid -- -- -- -- -- -- -- --

Issuance (Retirement) of Stock, Net (1.2) (2.4) (11.5) (11.2) (12.4) (11.1) 6.7 0.2

Sale/Issuance of Common -- -- 1.1 1.0 -- -- 1.6 1.4

Repurchase/Retirement of Common (2.9) (2.9) (46.0) (35.5) (26.2) (16.8) (13.1) (13.1)

Common Stock, Net (2.9) (2.9) (44.9) (34.5) (26.2) (16.8) (11.5) (11.7)

Options Exercised 1.6 0.5 33.3 23.3 13.7 5.7 18.2 11.9

Issuance (Retirement) of Debt, Net (28.1) (18.9) (39.9) (22.2) (25.3) (17.3) 171.4 (60.9)

Long Term Debt Issued 74.2 31.9 162.2 129.4 70.9 30.9 565.6 50.2

Long Term Debt Reduction (102.3) (50.9) (202.1) (151.7) (96.2) (48.2) (394.2) (111.1)

Long Term Debt, Net (28.1) (18.9) (39.9) (22.2) (25.3) (17.3) 171.4 (60.9)

Cash from Financing Activities (119.7) (62.2) (229.6) (169.9) (128.3) (71.5) 9.0 (184.3)

Foreign Exchange Effects -- -- -- -- -- -- -- --

Net Change in Cash (5.9) (3.7) 4.4 (0.9) (6.5) (4.0) 5.7 (5.0)

Net Cash - Beginning Balance 50.8 50.8 46.4 46.4 46.4 46.4 40.7 40.7

Net Cash - Ending Balance 44.9 47.1 50.8 45.5 39.9 42.4 46.4 35.7

Cash Interest Paid 9.7 3.1 28.4 21.6 14.7 3.5 14.8 13.2

Cash Taxes Paid 4.7 0.1 7.8 7.4 6.7 0.1 19.6 16.8

Reported Cash from Operating Activities -- -- -- -- -- -- -- --

Reported Cash from Investing Activities -- -- -- -- -- -- -- --

Reported Cash from Financing Activities -- -- -- -- -- -- -- --

Free Cash Flow 137.5 62.8 304.0 228.2 140.1 67.8 266.8 195.3

2014 2013 2012

14

Appendix 2: CAPM

Source: Student estimates

Rf Risk Free rate 2.55%

Rm Market return 9.5%

Β Beta 1.14

K Required Rate of Return 10.49%

15

Appendix 3: Franchise Value Mode Source: Bloomberg, Internal Student Estimates

)()(*

*k

kRBPS

gk

g

k

BPSROEP

g Growth of book value per share 16.15%

k Required rate of return 17.31% BPS Current book value per share 32 ROE Current return on equity 10% R Future return on equity 19% P* Fair value for the stock $62.04

Assumptions:

1. Growth of book value per share is derived from a 7-year average growth rate.

2. Required rate of return = 10-year Treasury note + Beta(S&P 500 Expected Return – 10-year Treasury Note)*.

3. Future ROE is derived from the management expectations in conference call.

.

16

Appendix 4: Residual Income Model Source: Bloomberg, Internal Student Estimates

BPSgk

kROEBPSP

g Perpetual growth 13.79%

k Required rate of return 15.74%

ROE Return on Equity 185%

BPS Book Value Per Share $28.20

P Fair Value $61.08

Assumptions:

1. Growth is based on AmSurg’s historical growth, with a discount on acquisition growth.

2. Required rate of return = 10-year Treasury note + Beta(S&P 500 Expected Return – 10-year Treasury Note)*.

3. Required rate of return is calculated using CAPM.

4. ROE is the estimated ROE of the combination of Sheridan and AmSurg.

17

Appendix 5: Holts Model Source: Student Estimates

Average Fair Value $65.29

Undervalued by 22%

Healthcare HCA Holdings

P/E 19.7 P/E 18.5

Estimated Growth Next Year 11.00% Estimated Growth Next Year 12.00%

Dividend Yield 1.50% Dividend Yield 0.00%

AMSG Est. EPS Fiscal $3.25 AMSG Est. EPS Fiscal $3.25

Pessimistic Scenario Pessimistic Scenario

AMSG Earnings Growth 4.00% AMSG Earnings Growth 3.00%

P/E AMSG 1 + .04+ 0 P/E AMSG 1 + .04+ 0

P/E Sector 1 + .11 + 0.015 P/E Grupo 1+ .12+ .00

AMSG Fair P/E = (.9924)(19.7) = 18.2116 AMSG Fair P/E = (.9196)(18.5) = 17.0134

Fair Value = (18.2116)(.3.25) = $59.19 Fair Value = (17.0134)(3.25) = $55.29

Anticipated Scenario Anticipated Scenario


P/E AMSG 1 + .17 + 0 P/E AMSG 1 + .17 + 0


AMSG Fair P/E = (1.04)(19.7) = 20.4880 JBT Fair P/E = (1.0446)(18.5) = 19.3259

Fair Value = (32.5424)(.31) = $66.59 Fair Value = (19.3259)(3.25) = $62.81

Optimistic Scenario Optimistic Scenario


P/E AMSG 1 + .24 + 0 P/E AMSG 1 + .24 + 0


AMSG Fair P/E = (1.1022)(19.7) = 21.7138 AMSG Fair P/E = (1.1071)(18.5) = 20.4821

Fair Value = (21.7138)(3.25) = $70.57 Fair Value = (20.4821)(3.25) = $66.57

Average Fair Price vs. Sector = $67.21 Average Fair Price vs. Sector = $63.37

Average Fair Price for AMSURG. $67.21 Average Fair Price for Cisco Systems, Inc. $63.37

Overvalued by: 25.16% Overvalued by: 20.63%

Holt's Model

Sector HCA Holdings

= = 0.9244 = = 0.9196

1.1071

= = 1.0400 = = 1.0446

= = 1.1022 = =

18

Sources:

Baseline

Bloomberg

Morningstar

Telemet

Yahoo Finance

Business Insider

AmSurg 10-Q

AmSurg 10-K

AmSurg Announcements

AmSurg Transcripts

AmSurg Conference Calls

The Better Business Bureau (BBB)

U.S. Bureau of Economics

Trading Economics Database

U.S. Bureau of Labor Statistics

Disclosures:

Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might

bias the content or publication of this report.

Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue.

Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company.

Market making: The author(s) does not act as a market maker in the subject company’s securities.

Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s)

to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The

information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a

recommendation by any indi vidual affiliated with CFA Society of Orlando, CFA Institute or the CFA Institute Research Challenge with

regard to this company’s stoc

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