|52 Wk High
|52 Wk Low
|Market Growth LT||B-|
|Market Growth ST||B+|
While Not Entirely Negative, Growth Indicators Show Several Signs of Weakness
According to its latest earnings report, Computer Programs and Systems, booked $53.33 million in total revenue last quarter, a 14.00% rise from the year earlier period's $46.78 million, which is not only a healthy increase but an improvement from its long term sales growth. Also including the latest quarter the company had $209.75 million in 12-month trailing revenue, only 20.31% higher than the $174.34 million booked during the equivalent period ended three years ago, a modest increase in such timeframe. The next couple of quarters will help investors determine if the recent increase in top line growth is sustainable and whether it will lead to higher profits. Profits grew very strongly last quarter compared to a year ago while full year net income showed healthy gains from three years before. It posted a Third quarter profit increase of 26.60% to $9.20 million from $7.27 million (excluding extraordinary items) a year earlier, compared to a 38.47% full year profit increase to $35.92 million in the 12 months ended last quarter from $25.94 million three years earlier. During the last quarter the company's cash flow, operating and net margins grew by an average of 10.48% from a year earlier, extending a positive trend from its two previous quarters.
Investors sold off the stock after the company's Third 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||A-|
Assuming the Company's Fundamentals Don't Deteriorate in Coming Quarters, the Stock's Valuation is Acceptable at this Level
Trading at 20.09 times forward 12-month' earnings per share, Computer Programs and Systems,'s stock is inexpensive relative to our "optimum" P/E ratio of 22.35, 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. If the recent growth in the company's margins is sustained in the form of strong Profitability indicators--as it has now--it means the company could be gaining market share. This should translate into better EPS growth, providing a boost to the stock. The stock's forward P/E of 20.09, 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 7.40 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. Relative to the $3.70 in cash flow per share generated by the company in the last twelve months, the stock is attractively priced at 14.39 times cash flow per share considering its strengths across our fundamental indicators. Its price to sales ratio of 2.84 is slightly higher than the Services to the Health Industry's average of 2.30, 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 $596.54 million market cap is an acceptable valuation, representing a modest multiple of 15.10 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 $35.92 million in net profit it earned during the same period accounted for 17.13% of total revenue, a healthy net profit margin. Operating income during that same period accounted for 26.79% of sales, 97.25% higher than the average operating margin for the Services to the Health Industry industry, which was 12.76%. 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 45.30% during this time, even though this is below the 49.76% 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 $59.96 million, or 18.67% above the $50.53 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||A+|
|Debt/Cash Flow Ratio||A+|
|Interest Cov. Capacity||A+|
Company's Cash Flow Is Very Well Managed as Our Analysis Reflects a Very Healthy Operation
Computer Programs and Systems,'s cash flow grew considerably in its latest quarter to $11.60 million, a 53.66% increase from $7.55 million reported in the year earlier period. This represents a faster growth pace than when measured on a trailing twelve month basis considering cash flow rose 42.76% over this period compared to the twelve months ended a year earlier. This continued improvement should benefit the company's margins and provide a boost to the bottom line. The company clearly has very strong liquidity having no debt to finance, $28.69 million in cash on hand as of last quarter and a business that generated $13.61 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 $28.69 million in cash on hand last quarter compared to $13.61 million a year earlier, a 110.77% 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 70.85% return on $79.31 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 8.00%, which, when deducted from its return on investment results in an economic value added, or EVA, of 62.85%. 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 4.42%. Computer Programs and Systems, spent a total of $24.83 million over the last 12 months in common dividend payments, or 60.87% of its cash flow and 69.12% of total after tax earnings, an extremely large payout ratio. Even though this ratio is slightly lower than the 70.88% of earnings paid out in the 12 months ended just a quarter ago, it needs to be reduced more aggressively in order to avoid eroding the firm's liquidity and damaging its balance sheet. At least the company's generally healthy fundamentals provide it with some breathing room to make the necessary adjustments before the situation becomes dire.