I brought this one up before but didn't receive much input. But I feel I should bring it up again. Novacare (NOV) is trading way below book value in an industry that has been hammered by the BBA of 97. Here is my initial post:
Message 9814016
Anyway, management is selling off parts of the company to pay off debt and return to the core business, outpatient Physical Therapy. One of the latest press releases has stated that they will sell their shares of NCES, which is the company they created for their own use of labor. The sale of NCES will make them long term debt free. The following analysis is from NovAnalyst on the Yahoo thread.
<<My guess is the Pre-Tax (earnings) of a stand-alone Outpatient with no debt (it will all be gone with the close of O&P and NCES) is in the $40mm range. With roughly 62mm shares, that's $0.65 per share Pre-Tax, or $0.39 after-tax whenever NovaCare will have to pay those again! Put a 12 multiple of on it and the stock should trade for $4.65.>>
It is also a strong possibility that HealthSouth, their main competitor, could buy them out. Senior management owns a bundle of options with a conversion price of 2 5/8. The stock is currently trading at 2. In my viewpoint, there is only the risk for upside here with a return to profitability or a buyout.
Another thing that I like about this stock is the fact that all the employees that have had to take pay cuts, spun off to another company, or rif'd are constantly blasting the stock on the Yahoo thread. And as Mike often says, when the sentiment is negative but the stock is undervalued, it looks good to me. I have taken a position.
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