What It Does
NightHawk (NasdaqGM:NHWK) provides radiology interpretation services to health-care providers during off-peak hours. The company maintains operations in Sydney, Australia, and Zurich, Switzerland, where its contracted radiologists provide reads during their regular business hours. NightHawk's direct clients include more than 370 radiology groups and more than 90 hospitals, covering 18% of all U.S. hospitals.
What Gives It an Edge
NightHawk is a heavyweight in the nighttime teleradiology industry. While most players consist of a handful of radiologists operating solely within a region or state, NightHawk's 100-plus radiologists and expansive client base (more than 20% coverage of all U.S. hospitals) facilitates a large volume of daily radiology interpretations and makes better use of each radiologist's time, an important factor considering the shortage of U.S. radiologists. NightHawk intends to gain greater scale by acquiring smaller U.S.-based competitors, which will also serve to increase its exposure to the budding daytime teleradiology market. All told, Morningstar analyst Karen Yiu believes that Nighthawk has carved out an entrenched position within an attractive health-care niche, explaining the firm's "narrow" economic moat rating.
What the Risks Are
Yiu rates NightHawk's risk as average, given the noncyclical nature of the radiology industry and the firm's established contracts with its clients and radiologists. The company has no exposure to Medicare and Medicaid reimbursement. However, if its final interpretation business takes off, NightHawk may be exposed to reimbursement risk as those organizations can reduce the profitability of covered services. NightHawk poses nominal financial risk, as it carries no debt.
What the Market Is Missing
Worries about increasing price competition within the industry and uncertainty about NightHawk's position in its new daytime teleradiology business have caused the market to discount the firm's profitable operations, its leading industry position, and its claim over the industry's scarcest resource: U.S. radiologists. Yiu thinks NightHawk's efficient processes, relatively high customer retention rate, and industry growth opportunities make the stock a good bargain at current prices.
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