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Biotech / Medical : Lincare Holdings
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To: John Stichnoth who wrote (23)6/18/1997 1:16:00 PM
From: Banjoman   of 33
 
>>Where did everybody go? Just a thought--I've been tracking a basket
of "alternative health care deliverers" (my term)--and over the past
six weeks Lincare has seen markedly less of a runup than others. And
it shouldn't be the reimbursement issue that is holding it back, since
that situation seems to have stabilized where it was.<<

Lincare is (to my knowledge) the only health care deliverer whose entire business is respiratory - and therefore Lincare has the most exposure to the reimbursement cuts. CEO said that each 10% cut can be expected to knock 50 cents off income - so a 20% cut would mean about $2.50 in 98, a 40% cut, about $1.50.

I figure the company should be worth 20x 98 earnings in a year - after the uncertainty is gone. I talked to CEO's of Rotech and Lincare, and heard Apria present a few weeks ago - they sounded pretty confident that ultimate outcome would be 20%, with reimbursement frozen (no CPI adjustment) for 5 years.

On that basis, I wouldn't pay more than $40-$45 for the stock now (allowing 10-20% appreciation over next 12 mo), so stock is fairly priced at $41.

FWIW: I think Lincare has the best management in the industry - their strategy is a bit different from Rotech's. Lincare takes over the companies they acquire, and using cost controls and excellent computer technology, brings Days Sales Outstanding to 50 (Rotech and Apria have DSO's of over 100 in respiratory). This superb control of cash allows them to do their acquisitions without taking on debt.

Don
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