Continucare Undervalued As It Continues to Grow

Continucare Corp (CNU) operates outpatient primary care and specialty services through a network of 18 medical centers throughout Miami-Dade, Broward and Hillsborough Counties in Florida. Four of CNU’s Medical Centers were recently recognized by Humana (HUM) as winners of its prestigious “Humana Five Star Award.”

The company feels its shares are undervalued, and we agree. Continucare’s Board of Directors recently approved an additional 1,000,000 share buyback, bringing the authorized total to 6.5 million. So far, the healthcare provider has invested nearly 9 million dollars buying 3.5 million shares.

Why does The Correct Call feel CNU is undervalued?

CNU trades at .57 times sales, meaning the company total value is 57 cents on the dollar for all of its revenue. The average company in the Specialized Health Service sector trades at .97 times sales.

With a forward P/E of 12.53, Continucare trades at a 44% discount to its peer average of 22.65 times earnings.

CNU’s PEG ratio of .73 also trails the industry average of 1.10. Studies have found that companies with a PEG ratio under 1 outperform the market nearly 90% of the time.

Continucare’s lackluster share price defies the company’s strong fundamentals.

In its most recent quarterly report, CNU posted earnings of $0.05 per share, up 228% from $0.02 a year ago.

Their revenue organically grew 9.2% to $65.9 million, compared to $60.4 million a year ago.

The balance sheet is healthy as Continucare has no debt and almost $13 million in cash.

We expect CNU to continue growing its revenues, increase its earnings, enhance shareholder’s equity and maximize the flexibility of its strong balance sheet with continued share repurchases and possible strategic acquisitions. If we have made The Correct Call, a return to CNU’s 52 week high of $3.43 in the next year is not out of the question.

Comments

[tracer3k]

Excellent summary.... this a true sleeper around $2 per share. Dr. Phil Frost holds some 24-25 million shares and continues to add. As the float continues to shrink, and given their P&L performance... a target of $3.50... is very realistic.