Wall Street's confidence gives Lincare's stock big boost

Sunday, September 27, 2009

CLEARWATER, Fla. - Wall Street analysts went crazy over Lincare last week, predicting that the home respiratory giant will more or less maneuver through all the landmines--competitive bidding, the oxygen cap, healthcare reform, etc.--that threaten to blow up the average HME.

 You can attribute most of that bullishness to a draft healthcare reform bill released Sept. 16 by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. That draft contained no cuts to oxygen, which the analysts took as a very positive sign for Lincare. Their optimism drove the stock up 23% to $32.40 on Sept. 21, a 52-week high.

 "(The analysts) probably overreacted on the downside of what might happen with the Senate draft, and when it didn't happen, they said, 'Okay. Let's give them an upgrade,'" said Bob Leonard, a broker with the Braff Group, an M&A firm based in Pittsburgh. "It's a 52-week high, yes, but just think about what the last 52 weeks have been like. If you went back two years, I think you'd have a different look."

 Lincare's stock closed at $32.07 on Sept. 22, 2008; $36.70 on Sept. 21, 2007; and $35.07 on Sept. 21, 2006. The company's stock stood at $19.90 on June 16, 2009, and has risen steadily since, with the biggest bump in price coming Sept. 16, when it jumped $3.77 in one day, according to Yahoo Finance.

 (While not as dramatic, Rotech's stock is also up sharply, from 20 cents on Aug. 9 to 53 cents on Sept. 21. American HomePatient's stock has remained steady at between 25 cents and 30 cents for the past few months, according to Yahoo Finance.)

 The rise in the value of Lincare's stock stands in stark contrast to the declining value of most HME companies over the past few years, thanks to cuts in Medicare reimbursement. But that's Wall Street, which often appears disconnected from Main Street, said Rick Glass, president of Steven Richards & Associates, a Tarpon Springs, Fla.-based M&A firm.

 "The analysts are focused on a much more short-term view," he said "They look at this thing and see a couple of good quarters. They'll run the stock up to $45, and then sell and whatever is going to happen will happen, and the stock will come back to $25."

 Of course, unless Wall Street analysts "know something we don't," there's still a chance the final healthcare reform plan could include cuts to oxygen, said one industry source.

 "There are a lot of 'what ifs' right now," the source said. "This thing is going to go into November or December."