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Biotech / Medical : Oxford Health Plan (OXHP)
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To: Joshua Wolf who wrote (267)11/25/1997 12:40:00 PM
From: Michael Burry  Read Replies (2) of 2068
 
Another valuation model:

Assumptions:
Current equity 645M
ROE 15.5% for next ten years, based on
minimum estimates of 100M net income
over the next year on 645M equity and
expectations that such returns should continue
at minimum (last 3 year avg 25%, analysts
even now are estimating 18%)

10 years hence, equity should hit 2.73 billion.
15.5% of this gives 422 million in net income.

A PE of 20 (5 yr low) gives a market cap of
8.45 billion, a return of 16.4% per year
at minimum for the next 10 years.

It should be noted that every percent change
in ROE attained results in a dramatic change
in ROI. For instance, a 20% ROE gives
increases the ROI to 24%. Alternatively,
a 10% ROE gives only a 6.1% ROI. If
management can re-attain its 25% ROE
in the long-run, ROI hits 32.1%.

Of course, market power visibility
is poor going forward, and these higher
ROE's have no basis in current fact.

Good Investing,
Mike
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