Re: balance sheet strength
Given my previous analysis, the next step is to estimate
the known charges coming down the pipe. To wit,
1) The charge for writing off certain Medicare operations and
restructuring others. Note the company has already said it will
do this. In my AMA news, I noticed that in Virginia BCBS just closed
10 of 13 Medicare plans due to costs>revenues. So, what will
the immediate charges be, and will there be more in the future?
2)The fine from the Attorney General
3) The fine from insurance regulators (note this is separate
from the AG's investigation)
4) The impact on its cost structure from fighting the lawsuits,
adding inefficiencies due to compliance with regulatory and
AG investigations, hiring KPMG and especially hiring
MIS people. These together may not result in
a charge, but may inhibit the ability to translate increased
revenues to the balance sheet in the form of ST liquidity.
5) Lawsuit settlement > insurance coverage
If these add up to >$150M then investors now appear in peril. Assuming
that 1-5 won't add up to 0, the situation is bound to appear
to get worse before it gets better, IMO. And if it does get worse,
the question becomes at what point (in terms of short term liquidity and hence ability to pay claims in the short term) would the regulatory authorities start to place limitations on operations?
Anyone investing now who does not have a model in place
for estimating these additional charges and the impact that
they may have is speculating on the shadows at the bottom of the cave, IMO.
Good Investing,
Michael Burry |
