|Market Growth LT||B|
|Market Growth ST||B+|
Mixed Growth Record Based on Company's Recent Reports Suggest Investors Use Caution in Buying the Stock
Computer Programs and Systems,'s latest financial report wasn't very encouraging from a revenue growth perspective, extending an anemic growth record also evident from a long term view. The company's total revenue last quarter was $51.27 million, only 7.01% higher than the year earlier period's revenue of $47.92 million. In the 12 months ended also last quarter, Computer Programs and Systems,'s total sales were $200.86 million, a 31.07% rise from the $153.25 million in revenue booked in the equivalent period ended three years ago, a poor showing over such a long period of time. As such, any boost to the company's bottom line will have to come from cutting costs, suggesting it will be important for investors to watch closely the company's margins in the next couple of quarters. In its latest announcement it also posted healthy profit gains both on a year-to-year basis and over a three year period when comparing full year results, using four rolling quarters of net income for the latter comparison. Its net income rose 9.92% to $10.04 million in its most recent quarter from $9.14 million (excluding extraordinary items) in the year earlier period, while full year profit for the 12 months ended on December 31, 2013 of $32.74 million was 74.74% higher than full year net of $18.74 million reported three years earlier. During the last quarter the company's cash flow, operating and net margins grew by an average of 6.73% from a year earlier, extending a positive trend from its two previous quarters.
After reporting earnings on January 31, 2014 that beat analysts' consensus estimates by 7.14%, the company's stock jumped 11.89% as investors welcomed the report. Computer Programs and Systems,'s most recent earnings report reversed--at least temporarily--a negative earnings surprise trend since the company has missed the analysts' consensus estimate by an average of -1.90% in its last six reports.
|Price/Cash Flow Ratio||B|
Assuming the Company's Fundamentals Don't Deteriorate in Coming Quarters, the Stock's Valuation is Acceptable at this Level
Computer Programs and Systems,'s stock, currently priced at 18.88 times forward 12-month' earnings per share, trades 19.89% higher than our "optimum" P/E ratio of 15.75. This ratio, calculated by MarketGrader, is determined by the growth in the company's earnings in the last two years, measured over 12-month rolling periods. Based on this formula Computer Programs and Systems, has grown earnings per share at a 12.47% annualized rate during the last two years. A high P/E multiple for this stock may be well justified considering such a strong rate combined with the apparent margin expansion and a very positive Profitability grade. This mix suggests the company is making sustainable market share gains that will benefit its financial results in the long run. The stock's forward P/E of 18.88, based on its earnings estimate for the next four quarters, represents a premium to the S&P 500 index's forward P/E of 15.20 but is lower than its trailing P/E of 18.88. Therefore value could apparently be found in the company's future earnings growth even though relative to the market the stock might not seem cheap (the fundamentals may already be factored into the price). But assuming the company remains fundamentally strong, the stock might have further room to run, or at least be a relatively safe place to be if earnings estimates materialize into actual reported results.
While Computer Programs and Systems, market value is 10.16 times its total book value, a significant premium, it's at least worth noting that none of the company's shareholders' equity is made up of intangible assets such as goodwill, which are subject to frequent impairment reviews. Based on the $2.60 in cash flow per share that the company has generated in the last four quarters, at its current price the stock trades at 24.16 times cash flow, a fair valuation justified by Computer Programs and Systems,'s fundamental strengths. Its shares also trade at 3.49 times trailing 12-month sales, a 5040.00% premium to its industry average of 2.32. Finally, from a value perspective, we look at how much bigger the company's market capitalization is than its latest operating profits after subtracting taxes. Based on this measure Computer Programs and Systems,'s $701.99 million market cap is an acceptable valuation, representing a modest multiple of 19.41 times its latest quarterly net income plus depreciation.
|Return on Equity||A+|
|Quality of Revenues||A+|
Profitability Record Is Excellent Across the Board Suggesting a Very Well Managed Operation
Computer Programs and Systems, is very profitable and this is reflected across the board in this category's indicators, with operating margins that exceed its peer group average and a very solid return on shareholder equity, all based on 12-month trailing data. The $32.74 million in net profit it earned during the same period accounted for 16.30% of total revenue, a healthy net profit margin. Operating income during that same period accounted for 25.01% of sales, 84.80% higher than the average operating margin for the Services to the Health Industry industry, which was 12.67%. Based on how much it has earned in the last four quarters, the return on Computer Programs and Systems,'s common equity has been a remarkable 47.40% during this time, even though this is below the 52.40% return on equity achieved in the year-earlier period. This metric plays an important role in how our system measures a company's management efficiency.
The company has no debt, which gives it plenty of room to find capital if necessary in light of the recent downturn in its numbers. However, it is still very profitable and nothing currently indicates it would need to take such a step. Computer Programs and Systems,'s core earnings in the last twelve months grew moderately from the twelve months ended a year earlier. The company's EBITDA for the most recent period was $54.14 million, or 19.88% above the $45.16 million earned from its core operations in the prior period. EBITDA is used by MarketGrader to measure the company's true earnings power since it includes interest expenses, income taxes, depreciation and amortization, all non-operating expenses, which are nevertheless accounted for in other parts of our analysis that look at EPS gains and net income.
|Cash Flow Growth||D|
|Debt/Cash Flow Ratio||A+|
|Interest Cov. Capacity||A+|
Company's Cash Flow Indicators Are Solid Across the Board but Offer Some Room for Improvement
Computer Programs and Systems, showed a small improvement in its quarterly cash flow during the latest period, in which it grew by 3.32% to $14.72 million from the $14.25 million reported in the same period last year. This is a marked improvement from the 9.81% decline in cash flow in the last twelve months versus a year before and could represent a turning point for the company's operating profitability and its future earnings growth. The company clearly has very strong liquidity having no debt to finance, $22.43 million in cash on hand as of last quarter and a business that generated $19.59 million in earnings before interest, taxes, depreciation and amortization in the same period. This affords it significant flexibility to take on debt if it wanted to pursue new growth opportunities such as an acquisition. The company had $22.43 million in cash on hand last quarter compared to $19.59 million a year earlier, a 14.52% increase. It continues to have no debt.
Our Economic Value indicator measures the company's ability to generate a true economic profit by taking into account not only the costs of running the business but also the cost of capital. In Computer Programs and Systems,'s case, since the company has no debt, we only look at the cost of equity, which is to say the opportunity cost to an investor of having his capital tied up in the company's shares instead of some other investment. Based on its 12-month trailing operating income, Computer Programs and Systems, generated a 72.73% return on $69.08 million of invested capital. Since it has no debt this simply includes all forms of equity. Its after tax cost of equity during the last year was 8.32%, which, when deducted from its return on investment results in an economic value added, or EVA, of 64.41%. This is a remarkable return to its shareholders, more than justifying their investment in Computer Programs and Systems,'s shares. The company increased its quarterly common dividend on September 30, 2013 by 11.76%, to 57.00 cents a share from 51.00 cents. It has now distributed dividends uninterrupted for at least five years and based on this latest payout the stock is currently yielding 3.24%. Even after a significant reduction in its payout, Computer Programs and Systems,'s total dividend payments of $22.64 million, made during the last 12 months, still account for 69.15% of its total after tax earnings. While lower than the 104.04% of earnings paid out in the 12 months ended just a quarter earlier, the current payout is still very high despite the company's generally healthy fundamentals. The total amount paid out in dividends in the last year also accounts for 77.95% of cash flow. It will therefore be important for investors to monitor the company's payout in the next few quarters for signs of diminishing liquidity and a damaged balance sheet.