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Non-Tech : Auric Goldfinger's Short List -- Ignore unavailable to you. Want to Upgrade?

To: Sir Auric Goldfinger who wrote (8002)	7/23/2001 11:58:55 AM
From: Sir Auric Goldfinger	Respond to of 19428

PLMD: The saga continues; Reiterate Strong Buy despite Friday events Adams, Harkness & Hill Research Note Stock:PLMD Subject:PLMD: The Saga Continues Analyst:Rauch/Bedford/Weisenberger Price:$47.53 Rating:Strong Buy Fiscal Yr. Mr02 $2.68 Mr03 $3.30 CY 01:$2.57 JuQ1:$0.63vs$0.47 CY 02:$3.18 NYSE Chooses Not to List PLMD - Rumors Will Fly, but We Would Stay the Course Strong 1Q Results & Various Catalysts Should Drive Stock Higher Reiterate Strong Buy Rating * NYSE notified PLMD early Friday morning that it would not list the Company * The stock was halted by the NASD the entire day Friday * NYSE did not provide PLMD with a reason behind its decision * We believe the lack of listing could pertain to the following: the inordinately high short position in PLMD's shares; clarity surrounding the FBI inquiry; the inability of the NASD to balance PLMD's shares; and, another ploy by the 'Shorts' (there still appears to be seven to eight million shares short) 1Q'02 results should exceed expectations once again * Recent reimbursement increase could add $0.30+ per share to CY02 estimates Reiterate Strong Buy rating We are reiterating our Strong Buy rating of PolyMedica Corporation. Friday was an interesting day as the stock was halted for the duration of trading by the NASD. PLMD was set to be listed on Monday morning on the New York Stock Exchange, but management received a call early Friday morning from the NYSE notifying the Company that it had changed its decision. The NYSE did not provide the Company with a reason behind its decision and in fact, indicated that it would be pleased to consider a new application. The stock is set to reopen Monday morning on NASDAQ. We anticipate that the Shorts and others will use this lack of listing to try to drive the stock lower. We believe that this is just another chapter in the ongoing manipulation of PLMD's stock by those who stand to lose significant amounts of money as the stock trades higher (the stock has appreciated 49% since June 14). We do not believe that the NYSE has any new information with respect to the FBI situation as the FBI would need to alert the Company as well. The NYSE approved the listing two weeks ago and had ample time to do complete diligence before accepting PLMD. It could be as simple as the NASD not being able to balance its books (due to the high short position and shares not being delivered) and the Specialist/NYSE not wanting to incur the financial risks associated with this imbalance. Also, maybe at the last minute, the NYSE decided it wanted more clarity with respect to the rumors surrounding the Company and maybe the NYSE just needed more time to make a decision and hence, declined as the deadline was July 23rd. After digesting everything, we believe the lack of listing was a result of one of two things: Either an imbalance at the NASD due to shares not being delivered or the Shorts and various broker-dealers helped to change the mind of the NYSE; both have substantial amounts of money to lose as trading on the NYSE should facilitate an immediate buy-in. Through various sources, we have learned that it costs up to 40% (in interest) to borrow or maintain a short position in PLMD's shares (this figure is absolutely unheard of). Also, many institutions which lent their shares are having difficulty getting their borrowed shares delivered. Finally, we believe that some market makers have lent shares they did not have, and hence, have short positions which would need to be covered immediately if PLMD were to trade on the NYSE. First Quarter Fiscal 2002 Results Should Beat Estimates Once Again. We believe the Company will beat our $62.0 million revenue estimate and $0.63 earnings per share estimate for the quarter. This compares with $51.2 million and $0.47 per share the year prior. We believe Liberty Medical (estimated at $46.5 million) and respiratory sales (estimated at $12.0 million) are tracking above our expectations. On all fronts, the Company appears to be executing, as this would be the tenth consecutive time (since we have been following the Company) that PLMD exceeds revenue and EPS expectations. Catalysts. We believe a handful of positive events should drive the stock higher over the near term. Those events include the following: 1) increased visibility/clarification to the exact nature of the FBI's inquiry; 2) announcement of a new disease state/product offering that will leverage the Company's current infrastructure; 3) strong 1Q results; 4) the COLA reimbursement increase starting July 1st; and, 5) an expanded relationship with Hartmann AG (to include the manufacturing of products in the U.S. to be sold under the Liberty Medical Supply brand name). Conclusion. We would use any weakness created by the recent events as a buying opportunity. We continue to believe that PolyMedica has not committed mass Medicare abuse and believe that upcoming positive news events and a strong quarter (along with continued short covering) should drive the stock higher over the near term. PLMD is now trading at 14.9X our CY02 EPS estimate of $3.18 per share (which does not include the upcoming COLA reimbursement increase), a substantial discount to its projected long-term internal growth rate of 25%+. PLMD continues to demonstrate flawless execution and is in the midst of a revenue and earnings acceleration that has not yet been reflected in the price of the stock. We believe the Company's track record proves that management can adequately manage growth and hence, deserves to trade at a multiple more commensurate with its long-term growth rate. PLMD should be rewarded for its improving earnings quality and its ability to consistently exceed analysts' expectations. We continue to believe the stock should be bought at current levels. In the recent past, we have witnessed increased investor attention to the diabetes treatment industry. JNJ's acquisition of Inverness (for $1.3 billion, or 11X trailing sales) and Medtronic's acquisition of MiniMed (for $3.7 billion, or 11X trailing sales) lead us to believe that PolyMedica is the best pure-play diabetes company left and is an attractive acquisition candidate. We estimate PLMD has approximately 320,000 active Medicare eligible diabetic customers and 600,000+ total diabetics in its database who would be of significant value to larger med device players looking to enhance its diabetic franchises. If PLMD were to receive a mere 4X trailing 12-month sales (a significant discount to the prior two acquisitions), the acquisition would be worth $66 per share to current investors.