|52 Wk High
|52 Wk Low
|Market Growth LT||B-|
|Market Growth ST||F|
Investors Betting on a Turnaround Must Be Cautious as Company's Growth Record is Still Very Weak
Computer Programs and Systems, has been struggling with anemic sales growth for some time and now, based on its latest quarterly report, it has dipped into negative territory. The company had total revenue of $204.74 million in the 12 months ended last quarter, only a modest 18.02% gain from three years earlier, when total revenue in the equivalent 12 month period was $173.48 million. And now sales have started to decline as evidenced by the 9.76% year-over-year decline recently reported by the company. It said in its latest announcement that last quarter's total sales were $46.27 million compared to $51.27 million a year earlier. These results underscore a very worrisome trend marked not only by a recent downturn in Computer Programs and Systems,'s business but also an inability to show sustainable long term growth that could lead to higher profits. It reported also that profit fell last quarter from the year earlier period, impacting also long term profit growth, which has been anemic in the last three years. We base long term profit growth on the change in full year (12-month trailing) net income from the comparable period three years before. Computer Programs and Systems,'s Fourth quarter net fell 33.82% to $6.65 million from the year earlier profit of $10.04 million (excluding extraordinary items) , which contrasts with its growth in 12-month trailing profit over a three year period. Also including last quarter's results, the company's profit grew to $32.53 million for the 12 months ended December 31, 2014, a 25.92% jump from full year profit of $25.83 million reported for the period ended three years earlier. The company's margins fell during the latest quarter with an average 2.99% decline in EBITDA, operating and net margins from a year earlier, reversing an increase reported in the preceding quarter.
Investors sold off the stock after the company's Fourth quarter earnings missed analysts' consensus estimates by 32.58%. Following the January 30, 2015 announcement, the stock tumbled 18.49% from the day before to the day after the report. This report worsened its earnings surprise record, having missed the consensus estimate by an average of 6.81% over the last six reported quarters.
|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
Trading at 20.03 times forward 12-month' earnings per share, Computer Programs and Systems,'s stock is inexpensive relative to our "optimum" P/E ratio of 22.70, the level that could be justified by the company's EPS growth rate. This MarketGrader-calculated ratio uses the company's quarterly earnings over the last two years, in 12-month rolling periods, to determine the rate of growth. By its measure, Computer Programs and Systems, has grown its earnings per share at an annualized rate of 3.79% during that time. This rate of growth could decelerate soon given the company's recent margin contraction, despite such good Profitability grades. This could in turn put pressure on the stock price. The stock's forward P/E of 20.03, based on the next four quarters' estimates, is higher than its trailing P/E and the S&P 500's forward P/E of 15.20. It would seem therefore that investors's growth expectations may already be factored into the stock price despite the company's positive fundamentals.
Computer Programs and Systems,'s market value is currently 7.25 times its total book value, a fair valuation when you consider none of the company's total stockholders' equity is made up of intangible assets such as goodwill. While recording some intangible assets is not necessarily a bad thing, a low percentage of intangibles versus other assets suggests the company's accounting is conservative. Its shares seem reasonably priced at 15.03 times the $3.52 in cash flow per share generated by the company over the last twelve months, if only because its overall fundamentals are pretty healthy. Its price to sales ratio of 2.90 is slightly higher than the Services to the Health Industry's average of 2.39, both based on trailing 12-month sales. 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 $599.61 million market cap is an acceptable valuation, representing a modest multiple of 16.57 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 $32.53 million in net profit it earned during the same period accounted for 15.89% of total revenue, a healthy net profit margin. The Services to the Health Industry industry had an average operating margin of 12.35% in the period. The company's operating margin of 24.21% exceeded that average by 83.71%. 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 40.27% during this time, even though this is below the 47.40% 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 operations, as measured by the company's EBITDA, have generated $53.40 million in earnings over the last twelve months, a modest 1.36% decline from the $54.14 million earned in the equivalent period ended a year ago. EBITDA is used as a way of measuring core earnings since it includes money earned in its operations such as interest expense, income taxes paid and depreciation and amortization, both of which are non-cash charges.
|Cash Flow Growth||F|
|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,'s cash flow declined significantly last quarter to $12.88 million, 12.53% lower than the year earlier quarterly cash flow of $14.72 million. What's more important and worth highlighting is the fact that up to the most recent quarter the company's twelve month trailing cash flow was growing very healthily, up 34.09% compared to the same period ended a year before. This marks a sharp slowdown in the company's business environment and is likely to put considerable pressure on its margins. The company clearly has very strong liquidity having no debt to finance, $34.49 million in cash on hand as of last quarter and a business that generated $22.43 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 $34.49 million in cash on hand last quarter compared to $22.43 million a year earlier, a 53.78% 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 61.37% return on $80.78 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 8.07%, which, when deducted from its return on investment results in an economic value added, or EVA, of 53.30%. 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, 2014 by 12.28%, to 64.00 cents a share from 57.00 cents. It has now distributed dividends uninterrupted for at least five years and based on this latest payout the stock is currently yielding 4.44%. Computer Programs and Systems, spent $25.53 million in common dividend payments in the last 12 months, which account for 65.55% of the company's cash flow and 78.49% of its after-tax earnings, an extremely large payout level. This represents an increase from the 69.12% of earnings paid out in the 12 months ended just a quarter earlier. While the company's fundamentals are generally positive, the increase in the payout to such high levels threatens to erode the firm's liquidity and strain its balance sheet.