BUY RECOMMENDATION: HEALTH MANAGEMENT SSYSTEMS, INC.
(HMSY, @US$5.625, listed on NASDAQ)
52 wk high-low: $37 - $4.75
Mkt. Capitalization: 114 million
We recommend the purchase of HMSY for investors
who are willing to overlook the current trough in
earnings performance to longer-term capital growth
potential for the following reasons:
1. Clean balance sheet with no long term debt and over
US$2 cash per share.
2. HMSY just reported on May 28th its operating
results for the second fiscal quarter ended April
30th.
HEALTH MANAGEMENT SYSTEMS, INC.
Consolidated Statements of Operations
(Unaudited, In Thousands of $, Except Per Share Amounts)
Three Months Ended Six Months Ended
April 30, April 30,
1997 1996 1997 1996
Revenue $ 20,108 25,707 42,380 51,326
Cost of services
Compensation 13,505 11,892 25,164 23,647
Data processing 1,795 2,112 3,588 4,277
Occupancy 2,416 1,775 4,559 3,483
Other 4,603 4,459 7,953 8,751
22,319 20,238 41,264 40,158
Operating (loss)
margin (2,211) 5,469 1,116 11,168
Amortization of
intangibles 239 55 285 110
Operating (loss)
income (2,450) 5,414 831 11,058
Other income/expense
Interest income, net 1,331 228 1,772 479
Merger related costs (37) (489) (537) (489)
Equity in (loss) earnings
of affiliate (294) 174 (310) 297
(Loss) income before
income tax expense (1,450) 5,327 1,756 11,345
Income tax benefit
(expense) 1,731 (2,225) 328 (4,633)
Net income $ 281 3,102 2,084 6,712
Net income per
common share $ 0.02 0.17 0.12 0.37
Weighted average shares
outstanding 17,832 18,477 18,034 18,329
3. Despite the poor performance for the current quarter,
we expect the company to earn US$.50 per share for
the fiscal year ending Jan. 31, 1998, and US$.60 the
following year as the newly hired executive, Mr. Michael
T. Mcquire,*(hired in mid April) puts into effect a new
sales management team.
4. The stock is priced at the relatively low ends of
the five-year range for several of the following ratios.
5 year range Current
P/E 6 - 52 11
P/book value 1 - 8.4 1.2
P/cash flow 5.2 - 39 6.3
P/sales .8 - 6.6 1.0
*As reported by the PR Newswire, Mr. McGuire, 48, has
over 15 years of experience in the sale and development
of health care information systems and services. Mr.
McGuire acquired his sales management expertise while at
Xerox Corporation, then went on to hold several
executive positions at HBO & Company, where he was
responsible for developing and implementing their
outsourcing business line. Most recently, Mr. McGuire
held the position of President and Chief Executive
Officer of National Healthtech Corporation, where he was
directly responsible for developing the company's sales
infrastructure as well as a healthcare outsourcing unit.
5. Moreover,on May 28, 1997, Health Management Systems Inc.
said its board authorized the repurchase of up to
$10,000,000 worth of its common from time to time in open
market or private transactions. The company said it
currently has about 17,700,000 common shares outstanding.
HMSY provides proprietary information management and
data processing services and software to hospitals and
health care providers, government health services
agencies, and companies that serve the health care
industry. The company, which has more than 450 clients
in 42 states, develops systems for retroactive claims
reprocessing, 3rd-party liability recovery,
comprehensive accounts management, electronic data
interchange (EDI) services including electronic billing
and follow-up services, and managed care decision
support systems that analyze financial, clinical, and
operational information.
For a 60 month price and volume chart, just click on the
following URL:
www1.wsrn.com
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Also, plesae visit "Huang's Investment in Special
Situations", pronet.com.tw
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