Lincare Holdings, Inc. (LNCR)

Telechart Pick

Oxygen therapy has been spared in the current health care bill.

anticitrade - http://caps.fool.com/player/anticitrade.aspx

fair value~~$59.35

MFI Pick

caps on oxygen will severely limit the upside.
cuts on reimbursement on oxygen will evaporate profits
two years of patient for NO REIMBURSEMENT after 36 months...i mean come ON!!

Health Care needed for the baby boomers. Aquistions will lead to growth.

Oxygen play

A medical products company with good management

LNCR trades at a 52 week low and low teens P/E, despite mid-teens growth in sales and earnings. (Due to Medicare reimbursement concerns). It also has no LT Debt, and has been a "consolidator" in its industry due to efficiencies of scale and operations. My take is that LNCR will thrive whatever the Medicare environment, as even adverse developments will hurt competitors more than LNCR, creating further attractive expansion opportunities for LNCR. Until then it's using its free cash flow to buyback stock, which is always nice to see. I'm buying...

My wife is a respiratory therapist and tells me this is far and away the best company she works with.

We all need to breath and LNCR makes it easier for the sick to do so.

I originally thought to put an underperform on Lincare until I dug a bit deeper.

From a fundamental standpoint, Lincare is a great stock. With a TTM P/E of 15 and a projected 5 year conservative earnings estimate of 10%, the pricing is reasonable. From a cash flow and quality of earnings standpoint, they have been stellar.

As mentioned in their most recent investors report, the respiratory services industry is highly fragmented. I see them capitalizing on acquisitions and continuing organic growth.

The one drawback will be the uncertainty of reimbursement in the future as Medicare has cut rates on DME and will introduce competitive bidding (Lincare could benefit from this). However, I believe the growth in home health care and increased incidence of respiratory related illnesses such as COPD and emphysema will help drive this stock in the long term.

I expect Lincare to reach the mid-40s within a year or so and possibly hit 50 sometime in the next couple of years.

Currently trading at 74% intrinsic value.

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.

There is a lot to like about Lincare. Return on equity is above average for the industry at about 19% as of today (3/1/07). Profit margins are over triple the average for this sector. Plus, they have been reducing shares rather than diluting...a welcome bonus. The annual growth rate is a respectable 13% over the last five years. They have been effective at wisely investing retained earnings instead of frittering the money away. Best of all, shares are available at this time for less than 60% of intrinsic value. Oh yes, did I forget to mention a PEG of .9 and return on invested capital of over 15%?

Good returns, margins, turns. Only 6% ownership, but otherwise everything looks good here, in a growth industry.

Massive sell volume. close to 52 week low. Sell ast.