Analysts downgrade Lincare's stock

Sunday, March 31, 2002

CLEARWATER, Fla. - Spooked by its acquisition of a large respiratory-meds business and a fear that it may be embarking on a new, riskier business strategy, analysts downgraded Lincare's stock from a buy to a hold in mid-February and forced a sizeable sell-off.

In all, Lincare's stock nosedived about 10% following downgrades by UBS Warburg and Jefferies & Co.

Lincare declined to comment, but industry watchers said that in acquiring Med4Home (a $35-million to $45 million respiratory pharmacy in Kansas City, Mo.), Lincare did not deviate from its business strategy. Rather, the move is right in line with Lincare's model of building stellar earnings by treating Medicare respiratory patients, whatever their needs, be it a concentrator or respiratory medications.

Of Lincare's $800 million in annual revenues, about $100 million of that comes from providing respiratory medications. Analysts either didn't realize that, or they take a dimmer view than most of Medicare's desire to reduce reimbursement on respiratory medications by slashing the average wholesale price (AWP).

"You know what, their (analysts) guess may be as good as anyone's, but I don't see that as a reason to downgrade their stock," said one industry watcher. "Buying Med4home gives Lincare access to patients they didn't have in other markets and allows for cross pollination. I can't think of anything that would be more in line with their strategy."

The deal also may have caught analysts off guard because it was so large and didn't involve oxygen.

"Analysts look at that and say, 'It's a shift in strategy,' but it isn't," said another industry watcher. "Lincare has a very strong strategy of respiratory combined with all the ancillary products. This isn't a surprise situation, and it will go away."

If analysts fear Lincare is moving away from acquiring home respiratory companies, they shouldn't, sources say. There are still good companies out there and new HMEs entering the market all the time, but the inventory of strong respiratory companies isn't what it was five or so years ago, when Lincare and others began snapping them up. Consequently, over the past few years Lincare has bought companies that have strong - but not always dominant - respiratory components, sources say. HME