The Company and subsidiaries provides oxygen, respiratory therapy services, infusion therapy services and home medical equipment such as hospital beds, wheelchairs and other medical supplies to the home health care market.
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This stock has been beaten down by Medicare cuts to reimbursement rates. Cuts on durable medical equipment kicked in starting February, and cuts on respiratory assist devices kick in starting May. These are well-anticipated, and are already priced in.
What hasn't been priced in is Medicare's upcoming change to introduce competitive bidding. This would have companies bid for territories based on pricing. Whoever bids lowest for a product or service gets to be the Medicare provider in that territory. This rolls out in 10 markets in April '08, and another 80 in April '09.
That may seem far off, but the bidding is starting now. This change is likely to fuel a wave of consolidation in the industry. LNCR has already been an acquisitive company, enabled by their consistently strong FCF. The competitive bidding will squeeze a lot of smaller players and let LNCR continue to make accretive deals.
I could also mention how demographics will expand the market for home respiratory therapy in the long term. But of course that's already fully priced into the stock too, so it's not worth much discussion.