Did some fundamental work on OCR and NCSS. OCR has higher margins (gross margins are 30% vs. 25% for NCSS), and positive operating cash flows. NCSS runs substantial negative cash flows. NCSS sells for about $1600 per patient served (taking enterprise value - all debt + market value of equity) while OCR sells for $3100 per patient. NCSS is losing customers, OCR is gaining them. If NCSS can't solve cash flow problems, I'm not sure what they will do (they are near the borrowing limit of their bank line, and violated the terms of the line this quarter), since they won't be able to borrow more.
Note that OCR was buying companies as high as $4900 per patient last fall.
NCSS is compellingly cheap, but the equity is risky, due to negative cash flows. Lots of inside ownership though. OCR is a better company - the valuation looks cheap now, but more bad news could still come. Best to wait and see how the earnings actually come in - at least for me. Looking closely at NCSS's report and the BBC report, I'll bet there is more bad news coming for OCR.
Don |
