NovaMed Inc. (NOVA) is engaged in the operation of ambulatory surgery centers (ASCs) and the provision of optical products and services to eye-care professionals. The ASC model represents an alternative to acute hospital admission, which is attractive to both the payor in terms of cost and the provider in terms of improving operational efficiencies. Structured equity-partnerships with physicians align financial incentives for both partners to maximize revenues.
The company's income from continuing operations in the second quarter was $2,387,000, up 50 percent year-over-year. Operating income as a percentage of revenue was 26.1 percent, versus 24.8 percent in the comparable period last year and 24.5 percent in the first quarter of 2008. Net cash provided by operations, which totaled $6.8 million, was a key highlight of the result, compared with $5.3 million, a year ago. Our Buy recommendation remains intact at current levels.
We have valued NOVA on a forward price/earnings (P/E) basis, as well as a comparison to similar firms in the healthcare facilities sector. We believe the current business model is sound, and represents an attractive value proposition to potential commercial healthcare partners. Our $7 price target is derived using a 19.4 x P/E multiple and FY08 EPS estimate of $0.36.
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