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Biotech / Medical : ROTC:Rotech medical
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To: Kiriakos Georgiou who wrote (44)3/2/1997 9:52:00 PM
From: Meridian   of 161
 
To all: I'm new to this thread and never in my life thought that, in 1989 when I purchased ROTC for a split-adjusted $4, I would get the opportunity to discuss this great company with a diverse group of shareholders via the internet.

Since 1989 I've bought and sold several times, but ROTC is a sentimental favorite of mine - it was the first stock I ever purchased ... and more importantly the first stock I ever made money on! It whetted my appetite and provided fodder for my "great stock picks" stories.

At $18 1/2 the stock is trading at 15.7X calender year 1997 estimated earnings of $1.18. The S&P is trading at 17.5X 1997 est. earnings, but it's growth is far less than that of our star ROTC. Bad/Worst case scenario (if the HCFA cuts Oxygen reimbursements by 20% starting Jan 1, 1998) ROTC's earnings will be about $0.90 ... if the company does nothing to counter this move. That's a big IF, and not a very likely one. Management is great and I think they would:

1. accelerate the acquisition pace (as marginal players would be forced to sell at very reasonable prices)
2. pass on some of the cuts to their vendors (ROTC is getting big enough to have substantial leverage)
3. sell their PPM ($25-$27 million in revenue) for 1.0X-1.5X revenue and use the proceeds for either more acquisitions OR debt reduction

1998 earnings visibility is low, but those with a 2-3 year investment horizon will be rewarded. On the plus side, if the HCFA cuts by less than or equal to 10% ROTC should rally.

Good Luck

Brian
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