American Caresource (XSI): Strong Buy
Business: ancilliary care benefits management. Provide network of ancillary care services (e.g. surgery centers, free-standing diagnostic imaging centers, home health and infusion, etc) to HMOs and PPOs.
Shares out(mm): 14.7
Stock Price: 3.83
Mkt Cap (mm): $56.15
Rationale:
According to the companies 4Q08 conference call, they expect to have margins of 18-20% and SGA of about 8% when they hit scale of about $100 million in revenues. This year they expect to exceed $50 million in revenue (in the CC they said $50 this year NOT including up to 10 new clients of $3-5 million each). 2010 is probably a good guess as to when they hit $100 million. At that level of revenue and 18% margins that would give:
Pre-tax profit: 10 million
After-tax profit: 7 million
EPS: .68
Assuming a multiple of 12 gives a price of 8.19 (9.82 if assume 20% margins). Assuming 15% share dilution by then and a PE of 10 still gives 5.93 or an annualized return of 25% over two years. A price of 9.82 gives an annualized return of 60%.
Risk Factors: not really sure. They seem to be in a growth business and have good relations with their customers. Talks with the previous CEO indicated it would be hard to replicate their network but its difficult to verify this.
References:
a link to the conference call is on this page.
