Loaf. Great stock. Here's some more info:
PMCO.........4 STRONG BUYS
PMCO Q2:97 EPS OF $0.07, $0.01 BELOW CONSENSUS; PIPELINE IMPROVING;
STOCK DISCOUNTED RELATIVE TO GROUP; BUY
KEY POINTS:
*ProMedCo reported Q2:C97 EPS of $0.08 per share - $0.07 fully-taxed - vs. ($0.06), $0.01 per share below our estimate, due primarily to an acquisition shortfall of 50 physician estimated for the quarter.
ú Revenue grew 156% to $25.7 million from $10.0 million a year ago - a $5 million increase from Q1:C97- however, this was about $4 million shy of our forecast. Revenue gains reflect 18.6% same-clinic growth and plus the initial interim management fees and consulting fees from 2 acquisitions announced in the quarter: (1) announced on Wednesday, the Beacon clinic in Harrisburgh, PA, purchased from Coventry Corporation (CVTY $17 3/8), with 21 physicians and a capitation contract for 12,000 CVTY lives, should add $8-9 million in revenue and $1-1.5 million in contribution annually, and
(2) Health Plans, Inc. and IPA management company in Maine and New Hampshire with a contract covering 30,000 globally capitated lives, $19 million in annual revenue and $1.9 million in annual contribution. Acquisitions were below our targets - we were looking for an 70 physicians in addition to the Health Plans deal.
ú Pretax margins doubled sequentially to 6.2% from 3.1% in Q1:C97, reflecting the combination of improved clinic EBITDA (8.3% vs. a loss a year ago and 5.8% in Q1:C97), due in part to continued profitability gains of base clinic operations, overhead leverage and to generous interim accounting for newly
acquired capitation contracts (Until approved by regulators, revenue for the newly acquired Beacon Clinic is being recorded as a primary care capitation contract with a full risk-share; as the converts over to a global capitation, revenue will increase significantly, although margins will contract).
ú Management poses promising near-term acquisition outlook. While the earnings report was somewhat disappointing relative to expectations, this is an acquisition-driven story, and management is expressing its greatest enthusiasm to-date in the improved quality, depth and visibility of the pipeline. Specifically, PMCO indicates late stage negotiations are under way with clinics totaling 300 physicians, including several 60-80 physician groups, with another 160 physicians defined as "close to ` final' stage negotiations". While the company has closed on only 53 physicians in C97 to date, closure on a fraction of these would return the company to our target for 70-80 per quarter. Management expresses confidence that they can close on the
190 physicians necessary to meet our 140 physician H2:C97 acquisition estimate and to make up the 50 physician shortfall from Q2:C97.
ú Accordingly we are shaving our C97 EPS estimate by $0.03, lowering it from $0.40 to $0.37, and likewise our C98 EPS estimate by $0.03 from $0.68 to $0.65 to adjust for the acquisition shortfall this quarter, however if management is successful is reaching its acquisition targets they could be back on track or even ahead of our original estimate.
ú We believe that PMCO stock offers intriguing risk-reward, trading at 11x C98E and only 1.1x revenue run-rate, both meaningful discounts to its peer group. This valuation, in our view, appears to largely discount the potential that PMCO can meet its acquisition targets - if unsuccessful, we gauge that downside
risk from current levels is about $2 per share. In contrast, mounting promise that acquisition momentum may soon accelerate could drive the stock to new highs within the next 3-6 months. If able to deliver on its acquisitions over the next 2 quarters, we would expect multiple expansion could drive the stock to a
$9-11 range near-term, and approaching a group average of 18-20x forward-12 month earnings over the next year, suggesting a 12-month price target of $13-15 per share, or a 100% potential ROI.
THE COMPANY AND INVESTMENT THESIS: Founded in December 1994, ProMedCo is a multispecialty physician practice management company focused on rural and secondary markets. We believe the company' s strategy of focusing on pre-managed care markets with profitable Medicare-risk rates should give it a significant
advantage toward becoming the dominant consolidator in each of its markets. By utilizing an operating model similar to earlier PHYC, offering doctors management agreements rather than employment and a favorable profit split, we believe that ProMedCo should be able to compete favorable with other PPMs, and could provide
doctors with a second chance to "get in on the ground floor."
INVESTMENT RISKS: Among the risks are ProMedCo' s relatively short operating history, high dependence on acquisition driven growth and the uncertainty related to taking capitated payments from managed care organizations.
Robertson, Stephens and Company maintains a market in the shares of Promedco and has been a managing or comanaging underwriter for the company within the past three years.
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Tuesday September 2 8:47 AM EDT
Company Press Release
PROMEDCO TO AFFILIATE WITH DOMINANT PHYSICIAN GROUP IN SARASOTA, FLORIDA
DEVELOPING MAJOR PRESENCE IN FAVORABLE FLORIDA MARKETPLACE
FORT WORTH, Texas--(BUSINESS WIRE)--Sept. 2, 1997--ProMedCo Management Company (Nasdaq/NM:PMCO) today announced the signing of a binding letter of intent to acquire certain assets of Intercoastal Medical Group, the largest physician group practice in Sarasota, Florida, with 26 providers, including 24 physicians and two physician extenders, at six sites. The transaction is expected to close in September. Other terms were not disclosed. The Company already has a presence in southwest Florida through its affiliation with a physician group in Naples, Florida, consisting of 39 physicians.
H. Wayne Posey, ProMedCo's president and chief executive officer, said, ``This transaction is important because the Sarasota market adds significantly to our current base of operations in the southwest Florida market and is consistent with our objective of aligning ourselves with high-quality, primary care-oriented medical groups in secondary markets. This affiliation is particularly gratifying to us because of the enormous managed care potential which exists throughout this region, particularly in the area of Medicare risk. We view much of the Florida marketplace as an exciting opportunity for ProMedCo, and active discussions are under way to develop additional relationships in this important state.''
This press release contains ``forward-looking statements'' which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on current expectations and may be significantly impacted by certain risks and uncertainties, some of which are described in the Company's S-1 Registration Statement and Prospectus filed with the Securities and Exchange Commission on March 12, 1997. There can be no assurance that statements made in this press release relating to future events will be achieved.
ProMedCo, headquartered in Fort Worth, Texas, is a physician practice management company. ProMedCo's focus is to facilitate the consolidation of physician groups into primary care-driven, multi- specialty networks. The Company provides expertise in managed care, access to capital, sophisticated information systems and experienced management.
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ProMedco Mgmt. Posts 2Q EPS of $0.08 vs. $0.06 Loss
PROMEDCO MGMT. CO. Interim Consol. Earns.: June '97--Thou. $
Ticker: PMCO (news)
Highlight: INE
Date: 970813
3 Mos. to June 30:ÿ1997ÿ+1996ÿRevenuesÿ25,732ÿ10,041ÿNet incomeÿ1,107ÿd474ÿ*Sh. earns.:ÿ$0.08ÿd$0.06ÿÿ6 Mos.:ÿÿÿRevenuesÿ46,458ÿ17,133ÿNet incomeÿ1,562ÿd917ÿ*Sh. earns.:ÿ$0.12ÿd$0.11ÿÿdDeficit.*As reported.+Restated to include the operations of Western Medical Management Corp. Inc., which was acqd. on March 17, 1997, and accounted for as a pooling of interests.
Aug. 13, 1997, ProMedco Mgmt. Co. announced June '97 three-month earnings per share of $0.08 vs a loss of $0.06 for same period a year ago and six-month earnings of $0.12 vs a loss of $0.11 for same period a year ago.
Results for 1996 have been restated to include the operations of Western Medical Management Corp. In., which was acqd. on March 17, 1997, and accounted for as a pooling of interests. |
