CardioNet: A heartbreaking drop
Today's Financial News - Posted July 13, 2009
With one stroke of a pen, a Medicare insurer managed to take millions of dollars out of investors’ pockets today. CardioNet (NASDAQ:BEAT) may be down by 30% today, but investors have a never-before-seen opportunity to grab shares at great prices.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Is this a sign of the future? A health insurer changes its mind and sends a company a letter that cuts its value by more than 30%.
If you have been following the health debate in Washington, you know the news was only a matter of time.
Unfortunately, plenty more similar stories are likely to come in the next six to nine months. That’s the hope and change stuff so many Americans vote for.
CardioNet (NASDAQ:BEAT) investors awoke to bad news this morning after the company revealed it received a letter from Highmark Medicare Services stating the insurer will adjust its reimbursement rate for one of CardioNet’s most popular and profitable services.
Until last week, the $150 million company could count on a rate of $1,100 per service. Today, it will get just $754.
With little more than a whim and a stroke of the pen, CardioNet lost 45% of its revenue.
Investors quickly slashed share price an equally acute amount, moving the trading price from Friday’s close of $8.83 to an opening figure of $5.78.
This is going to hurt
While the news may be bad today (especially for the Medicare program’s next victim), it could lead to a profitable trading opportunity for quick-moving investors.
The news of a change in reimbursement rates does not come as a major surprise to the folks closely following CardioNet’s action.
The company cut its outlook earlier this month after learning Highmark was routinely reviewing CardioNet’s reimbursement rate. On July 1, the company cut its annual earnings expectations to a range of $0.30 to $0.35 from a previously announced range of $0.69 to $0.73.
That news sent shares plunging from $16.30 all the way to $9.50. And with shares dropping even further today, down to an intra-day low of $5.60, investors have an opportunity to grab the stock at levels never before seen.
There is no doubt today’s news is going to force the company’s manage team to scramble for a solution. Lower-than-expected growth rates and reduction in the price it receives for the sales that it does secure are going to make cash-flow management tough over the next twelve to eighteen months.
Fortunately, liquidity is not a near-term problem for CardioNet. With about a $100 million in current assets and just $16 million in short-term liabilities, the company has the cash it needs to survive the current dilemma and possibly spend its way to growth.
Today’s news may be sending existing shareholders fleeing for the exits. Fortunately, the selloff has created an opportunity for new investors to hop in where the sellers jumped off.
The news is bad, but the company is stable, well-capitalized and is in a growing industry. Buy your shares now and hold them through the current political hurricane.
Washington will be looking to tax your profits in no time.
Next Article: Goldman Sachs: Wall Street’s golden boy ready to show his cards
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