Stephens Inc. Analysis
Graham-Field Health Products, Inc. (GFI-NYSE) April 16, BUY
Company Fundamentals: ú One stop supplier; broad product line ú Service to customer will allow for increased market share ú Only company of its kind-niche strategy ú Efficient distribution strategy offers value-added services like same-day shipping and "paper-less" ordering Industry Fundamentals: ú Managed care dominates healthcare industry ú Trends are to improve product movement efficiencies, order management efficiencies and information sharing ú Cost emphasis is driving vendor/provider/distributor partnerships and consolidation
Valuation: ú We believe the stock is very cheap, currently selling at 58% of 1997 Fiscal Year end Book value per share, at 61% of our estimated 1998 sales per share and 9.6X our 1999 EPS estimate of $0.77.
Earnings Outlook: ú We are confident that the Company is on track to hit our operating EPS estimate of $0.01 for 1Q. ú We expect a 221% increase in 1999 to $0.77 from our estimated $0.24 in 1998.Market Psychology: ú Stock was severely impacted by 4Q earnings miss including acquisition integration charges. ú Solid fundamentals lead to market regaining confidence. ú Continually watching acquisition integration.
Recent Developments: ú Company filed 10K yesterday, including solid combined balance sheet (with Fuqua) for 1997 year end. ú GFI's banks amended financial covenants on its $100 million credit facility (waiving the covenants based on trailing 4Q EBIT levels that the Company was in default). ú The Company negatively surprised investors with lower than expected 4Q EPS, which were related to the integration of seven acquisitions made at end of 1996 and 1997.Considerations: ú Ability to build information systems to integrate seven acquisitions made in 1997. ú Ability to return to consistent profitability. ú Continued Medicare reimbursement cuts could lead to operating margin pressure.
Catalyst: ú Hit or beat earnings expectations for the next several quarters. ú Visible integration improvements (i.e. a centralized information system installed as well as other distribution efficiencies completed). ú Return to growth strategy in 1999 (i.e. accelerated roll-out of GF Express and potential additional acquisition growth).
Company Description: Graham-Field Health Products, Inc., headquartered in Hauppauge, New York, is a leading manufacturer and distributor in the healthcare industry, servicing both the medical/surgical and the home healthcare markets. GFI offers the most comprehensive line of healthcare products available from a single supplier. With the acquisition of Everest and Jennings, GFI has positioned itself as one of the leading manufacturers of durable medical equipment in North America. |
