|Market Growth LT||B|
|Market Growth ST||B|
While Not Entirely Negative, Growth Indicators Show Several Signs of Weakness
Computer Programs and Systems,, which reported $197.50 million in total revenues for the 12 months ended last quarter, has seen its sales growth rate deteriorate recently. Relative to its $143.92 million in sales for the 12 months ended three years ago, the latest figure represents a very healthy 37.23% growth rate. However, when comparing its latest quarterly revenue of $46.78 million to the $45.17 million from the same quarter a year ago, for a 3.55% year-over-year growth rate, it becomes clear that Computer Programs and Systems,'s top line growth has decelerated significantly. If this yearly drag on growth continues for a couple more quarters, the company's long term growth grades will fall, affecting our overall rating. If the stock price reflects this decline, it is likely Computer Programs and Systems,'s rating will improve from the Value perspective, which will actually have a positive impact on its overall rating. On the profit front, year-over-year growth was very weak last quarter, a marked contrast to the excellent long term record posted by the company over a three year period when looking at full year results (defined by MarketGrader as four rolling quarters of net income). Its net income rose 4.97% to $7.27 million in its most recent quarter from $6.92 million (excluding extraordinary items) in the year earlier period, while full year profit for the 12 months ended on September 30, 2013 of $31.84 million was 103.18% higher than full year net of $15.67 million reported three years earlier. During the last quarter the company's cash flow, operating and net margins grew by an average of 5.27% from a year earlier, extending a positive trend from its two previous quarters.
The company's November 01, 2013 earnings report missed analyst estimates by 1.49%; however, investors reacted positively to the results causing the stock to rise 5.93% after the announcement. Notwithstanding such a positive reaction, this latest report continues a trend of missing analyst estimates; including this latest announcement, in the last six quarters the company has reported earnings that have been, on average, 0.52% below the Street's consensus estimate.
|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
** 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 20.15, 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 21.56. 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 10.59 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 $2.58 in cash flow per share that the company has generated in the last four quarters, at its current price the stock trades at 23.72 times cash flow, a fair valuation justified by Computer Programs and Systems,'s fundamental strengths. Its shares also trade at 3.45 times its trailing 12-month sales, a small 3.20% discount to the Services to the Health Industry industry average price to sales ratio of 3.57. 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. By this measure Computer Programs and Systems,'s $682.27 million market cap is excessively high considering it is 84.09 times its most recently reported net income plus depreciation (added back since it's a non-cash charge).
|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 $31.84 million in net profit it earned during the same period accounted for 16.12% of total revenue, a healthy net profit margin. Operating income during that same period accounted for 23.62% of sales, 87.58% higher than the average operating margin for the Services to the Health Industry industry, which was 11.84%. Computer Programs and Systems,'s return on equity, based on trailing 12-month earnings, is not only outstanding at 49.76%, but it's higher than the 42.90% return on equity from the year earlier period. This is an important metric of management efficiency in our grading system, as it measures the amount earned on an investment in the company's common stock.
Given such strong returns the company's capital structure seems to conservative, especially assuming it could raise debt capital to invest into what is a steady and profitable business. Computer Programs and Systems, has no debt at all. 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 $50.53 million, or 16.68% above the $43.30 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||B-|
|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, made $7.55 million in cash flow last quarter, 17.67% better than the $6.41 million reported last year for the comparable period. This growth seems to be accelerating considering that in the last twelve months the company's cash flow was 4.68% higher than the twelve months ended a year ago, a nice increase but quite lower than the current pace. This upward trend should boost its margins and overall profitability in the next few quarters. The company clearly has very strong liquidity having no debt to finance, $13.61 million in cash on hand as of last quarter and a business that generated $23.50 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. Computer Programs and Systems,'s cash on hand fell during the last year to $13.61 million last quarter from $23.50 million in the year earlier period, a 42.07% drop. The company still has 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 72.90% return on $63.99 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 10.15%, which, when deducted from its return on investment results in an economic value added, or EVA, of 62.75%. 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, 2012 by 10.87%, to 51.00 cents a share from 46.00 cents. It has now distributed dividends uninterrupted for at least five years and based on this latest payout the stock is currently yielding 3.26%. Computer Programs and Systems, spent $33.12 million in common dividend payments in the last 12 months, which account for 115.93% of the company's cash flow and 104.04% of its after-tax earnings, an extremely large payout level. This represents an increase from the 103.40% 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.