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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (12547)	5/29/2001 7:56:55 PM
From: Brendan W	Read Replies (2) of 78741

re: PHSY I started a position at the open today. I would have been well served to wait, but... Management's EPS guidance (4/5/2001) is still 2.94 for FY12/2001. My understanding is that this does not include approximately $2.50 in goodwill amortization expense. If you add that back PHSY closed at a multiple of 3.5 times forward cash earnings. If I am wrong about this, please let me know.... this is hard to believe for a company with over $11 billion in revenue. In exchange for that valuation, you have to accept the following "cons": - large exposure to California - large national exposure to medicare - medical cost ratio has risen to 90% - large amount of short-term debt due I believe in 1/2002 - the senior debt rating has decreased to ba3 from investment grade over the last two years - company is changing provider contracting from capitation to risk-based/fee-for-service. This entails different capabilities, greater capital expenditures, and also changes the timing of revenues/expenses/liabilities making financial statements less comparable to prior PHSY statements I also bought Midas (MDS) at around 10x earnings. It was touted in Barron's two editions ago by a value manager. I like the idea of nationally branded auto service. I also own Pep Boys which has worked out well for me.

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