I agree that NOV is not at much risk, especially because much of its contract rehab services revenues come from long-term care companies like Vencor. If Medicare places a cap on the amount of reimbursement per patient Vencor can receive, Vencor must pay for the remaining services itself. NOV is somewhat insulated because Vencor must pay NOV for its services. As a result, the middleman (Vencor) gets squeezed. The only way this would hurt NOV is if demand for its services decreases, as a result of the payment changes.
Today's drop is certainly related to Vencor. I follow Vencor, and I thought the same thing this morning when Vencor got killed. Until recently, NOV's slide was merely technical. Were it not for the announcement, NOV probably wouldn't have closed below $15, an important support area. The selloff triggered a lot of stop-loss orders to sell, so it looks as if it should rebound, especially if NOV beats estimates. I still expect .20 for the quarter, and maintain my year-end target of $18. Furthermore, I expect the stock to finish 1998 at $24 or higher, so this looks like a good opportunity.
Todd |
