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| Last: 14.50 +0.93 +6.85% |
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| Fundamental Analysis
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Growth |
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Market Growth LT |
A+ |
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Market Growth ST |
A+ |
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Rel. Price Strength |
B |
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Growth Potential |
A |
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Earnings Momentum |
A |
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Earnings Surprise |
A |
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Remarkable Growth Trend -
HEALTHSPRING INC continues to demonstrate outstanding top and bottom line growth performance.
Compared to full year results published three years before, the company's annual revenue grew 162.7% during its fiscal year ended December 31, 2007 while year to year quarterly sales increased 44.1% in its most recently reported quarter.
Its most recent full year net income of $86.5 million represents a 255.6% increase compared to the same figure three years before, while the company's quarterly net income increased 31.3% to $29.4 million in the most recently reported quarter relative to the same quarter a year ago.
HS's ability to exceed earnings estimates with its latest earnings release on October 31, 2008 generated momentum for the stock, reflected by a 12.6% price increase in the days surrounding the announcement.
The company is averaging a 20.7% earnings surprise (difference between expected and actual earnings) over its last six reported quarterly figures, which means it's consistently managing to beat quarterly Wall Street estimates, an important driver of stock price momentum.
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Value
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Capital Structure |
B+ |
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P/E Analysis |
A+ |
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Price/Book Ratio |
F |
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Price/Cash Flow Ratio |
A |
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Price/Sales Ratio |
F |
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Market Value |
B+ |
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Deteriorating Valuation -
HS trades at about 6.56 times earnings per basic share (excluding extraordinary items);
this compares very favorably to the MarketGrader-calculated optimum PE ratio of 22.3,
based on a historical 10.94% EPS growth rate, suggesting the stock is significantly undervalued.
Our optimum PE Analysis assigns each stock the highest possible valuation afforded by its long term EPS growth rate;
this historical growth rate measures the average year-to-year change in earnings per share for the company's last eight quarters (when available).
Given the company's strong revenue and earnings per share growth rates, HS may be gaining market share without sacrificing profitability.
The stock trades at -4.97 times tangible book value per share (tangible book value is based on the company's common equity minus intangibles such as goodwill); this is an excessive valuation of the company's assets on the balance sheet, which means further price gains will have to be justified from increased earnings from operations.
It trades also at 5.21 times cash flow per share, a sign that investors are assigning relatively little value to the company's non-cash assets and its earnings potential.
HS trades unfavorably at 0.36 times trailing 12-month sales,
a 71.29% premium to the Managed Health Care industry average price to sales ratio of 0.21.
The company's market capitalization of $758.09 million is 20.82 times its latest quarterly net income (including depreciation), representing a healthy valuation.
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Profitability
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Asset Utilization |
A |
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Capital Utilization |
C |
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Operating Margins |
B |
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Relative Margins |
A+ |
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Return on Equity |
C |
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Quality of Revenues |
A+ |
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Adequate Operating Results -
HEALTHSPRING INC exhibits acceptable operating performance with a weak 15.8% return on equity.
The company's leverage, with long term debt accounting for 24.93% of total capital, seems fair at these levels given the company's return on equity is not very strong.
The balance sheet looks strong considering the company had $458.07 million in cash on hand in the most recent quarter and $275.26 million in total debt.
The company's latest annual net income of $86.5 million (for fiscal year ended 12/31/2007) compared to its $1,351.1 million in assets is a sign of excellent operating efficiency, reflected in a high Asset Utilization indicator grade.
Especially important are HS's operating margins of 10.9%, 77.4% higher than the 6.14% Managed Health Care Industry average.
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Cash Flow
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Cash Flow Growth |
A+ |
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EBIDTA Margin |
B- |
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Debt/Cash Flow Ratio |
A- |
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Interest Cov. Capacity |
B |
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Economic Value |
F |
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Retention Rate |
B+ |
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Acceptable Cash Situation Leaves Room for Improvement -
HS displays very robust year-to-year cash flow growth of 43.5%
and a barely satisfactory EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 10.9%.
Given the company's current capital structure, its ability to service its debt seems very adequate, as suggested by a 6.8 debt to cash flow ratio, with total cash flow for the most recent quarter ended September 30, 2008 of $36.4 million compared with $25.4 million for the same quarter a year before.
HS's economic value added is very unacceptable based on a low cost of debt and moderate cost of equity, when compared to a 9.11% return on investment.
The company is financing its robust growth at least in part organically supported by an average 15.75% reinvestment rate over the last four quarters.
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