Thursday, May 13, 1999
Richard Hefter,Editor
PolyMedica's Positive Earnings Surprise No Surprise to Some
If you've been following our MicroCap1000 Model Portfolio, you've noticed the recent addition (March 26) of PolyMedica (PLMD). The stock has stayed within the 8 ½ - 9 ½ range, but if Wednesday's report of better-than-expected fourth-quarter results is any indication, this stock could be a lot higher.
That, at least, is the opinion of Ryan Rauch, analyst at CIBC World Markets, who reiterated his buy rating yesterday and his 12-month price target of $16 per share. The "stellar" F4Q results, he says, "validates our belief that it is the best-positioned company in the direct-to-consumer distribution of diabetic supplies."
PolyMedica through its diabetic supply subsidiary Liberty Medical Supply, Inc. is the leading direct-mail provider of diabetic testing supplies to seniors who have Medicare coverage. It also has the largest proprietary database of Medicare-eligible seniors in the country, a list of about 550,000 names.
The company on Wednesday reported earnings of 22 cents per share, beating analysts' consensus estimate of 20 cents and the previous year's quarter results of 15 cents. Revenue was strong as well, increasing 42% to $30.6 million, exceeding Rauch's estimate of $29.6 million.
Increased Target Market
Why the strong numbers?
As Rauch explains, Medicare began reimbursing for Type II diabetics (non-insulin dependent) on July 1 of last year, increasing PolyMedica's target market from 1.2 million to 3.2 million.
"It's a very under-penetrated and fragmented market that PolyMedica is increasingly penetrating as people realize the benefit of not having to go through Medicare to receive their diabetic supplies but rather have them delivered direct to their homes," Rauch says.
A growth story, the company is also a value play relative to the industry with its P/E ratio at 9.7 based on 1999 earnings versus a P/E of 21 for its peer group.
Reflecting the strength of the recent quarter, Rauch has upped his FY00 earnings estimate from 85 cents per share to $1.00, but says that's still conservative. After all, he foresees a potential takeover possibility, a retail pharmacy opportunity that may significantly enhance PLMD's current means of distribution, an exclusive "house" brand for glucometers and testing supplies that will enhance the firm's profitability, approval to begin providing prescription drugs and other medications, the introduction of two AZO products, and a synergistic acquisition or alliance where PLMD will use its proprietary database to cross-sell various medical products addressing other disease categories.
Add to that the fact that the company is enhancing its Web site and increasingly selling product over the Internet.
Did someone say Internet? |
