Assisted Living Concepts (ALC), a Wisconsin-based operator of 210 senior living residences in 20 states, was acquired by TPG, a global private investment firm, on February 26, for $12 per share in cash. Assisted Living Concepts had an insider ownership of 11.03%.
There has been a German study made about insider ownership that reached the following conclusion:
Using a data set of 245 companies for the year 2003 we find evidence for a positive and significant relationship between corporate performance, as measured by stock price performance as well as by Tobin's Q, and insider ownership. This relationship seems to be rather robust. Specifically, the sign and significance of the relationship does not change, even if we account for endogeneity by applying a 2SLS regression approach. Moreover, we also find outside block ownership as well as more concentrated insider ownership to have a positive impact on corporate performance. Overall the results indicate that ownership structure might be an important variable explaining the long term value creation in the corporate sector.
Based on these two observations, I screened for healthcare providers, which have over 20% insider ownerships. In this article, I will feature three such companies.
1. National HealthCare Corporation (NHC) affiliates operate for themselves and third parties 73 long-term healthcare centers with 9,221 beds. NHC affiliates also operate 36 homecare programs, six independent living centers and 17 assisted living communities. NHC's other services include Alzheimer's units, long-term care pharmacies, hospice, a rehabilitation services company, and providing management and accounting services to third parties.
The company reported the full-year 2012 financial results on February 15, with the following highlights:
National HealthCare Corporation's valuation is in line with the industry average.
The insiders own 21.52% of the company. The stock is trading at a P/E ratio of 13.05. The company has a book value of $46.59 per share and the stock has a dividend yield of 2.63%. I believe the stock could be a good pick below the book value.
2. American CareSource Holdings (ANCI) is the first national, publicly traded ancillary care network services company. The company offers a comprehensive national network of more than 4,800 ancillary service providers at more than 34,500 sites through its subsidiary, Ancillary Care Services. ACS provides ancillary healthcare services through its network that offers cost-effective alternatives to physician and hospital-based services. These providers offer services in 31 categories including laboratories, dialysis centers, free-standing diagnostic imaging centers, infusion centers, long-term acute care centers, home-health services and non-hospital surgery centers, as well as durable medical equipment. The company's ancillary network and management provide a complete outsourced solution for a wide variety of healthcare payors and plan sponsors including self-insured employers, indemnity insurers, PPOs, HMOs, third-party administrators and both federal and local governments.
The company has an insider ownership of 39.20%. There have not been any insider buy or sell transactions this year. In 2012, there were five insider buy transactions and zero insider sell transactions.
The company reported the full-year 2012 financial results on February 28, with the following highlights:
Net cash per share
On March 27, Timothy Stabosz, the 2nd largest unaffiliated shareholder of American Caresource Holdings, announced the filing of a Form 13D with the Securities and Exchange Commission. In the filing, dated March 25, Stabosz indicated he is the owner of 5.0% of the company. Stabosz noted in the filing that the company's common stock is currently trading for roughly the value of the cash on its balance sheet, thereby indicating that the public markets are attributing no value to the franchise of American Caresource itself. Stabosz stated:
While I support management's efforts to create shareholder value by seeking to broaden the base of business, I also believe the fact that American Caresource is accorded no value for its franchise on Wall Street, beyond the cash on its balance sheet, is unacceptable. As such, besides seeking to grow the business, I believe company management should consider other strategic alternatives, at this time, including the potential for a going private transaction, or an outright sale of the company.
Industry Average (Specialized Health Services)
Qtrly Rev Growth (yoy):
PEG (5 yr expected):
American CareSource Holdings is trading below the industry average P/S ratio.
The insiders own 39.20% of the company. The company has a book value of $2.12 per share and a net cash position of $1.87 per share. I believe the stock could be a good pick below the book value.
3. GreeneStone Healthcare Corporation (OTC:GRST) operates medical and healthcare clinics in Ontario, Canada. GreeneStone's clinics serve to add overflow capacity to an increasingly stretched provincial healthcare system, and to provide private alternatives to publicly available healthcare services. Its four medical clinics (three in Toronto, along with a facility in Muskoka, Ontario) offer various medical services, including addiction treatment, endoscopes, minor cosmetic procedures and executive healthcare services. The company currently has more than 60 employees and is based in Toronto, Ontario.
The company has an insider ownership of 26.12%. There have not been any insider buy or sell transactions this year.
The company believes that revenue growth will continue to increase steadily and the company will become more profitable as most of its costs, such as rent and salaries and wages are relatively fixed, and therefore will reduce, as a percentage, as business and bed capacity volume grows.
Shawn Leon, president and chief executive officer of GreeneStone Healthcare Corporation, commented on April 2:
The company expected this operational results for the fiscal year 2012, and we anticipate even stronger growth in 2013 where we have all the reasons to believe that by the end of our second quarter the company will be profitable.
Endoscopy - There are numerous private endoscopy clinics in the Greater Toronto Area including endoscopy suites in all of the local area hospitals. Referring physicians have choices where they can refer their patients. Most hospitals have very long wait times and most of the private clinics have shorter wait times. The North York clinic and the Albany Clinic both feature traditionally short wait times, which is an important advantage especially to procedures that are urgent. Easy access is also an issue with hospitals as they are not located close to transit and have high parking fees. Both of GreeneStone's endoscopy clinics are next to subway stations and GreeneStone's North York clinic has free parking. The hospitals generally have the newest generation of equipment while many of the private clinics will have third- or fourth-generation equipment. GreeneStone's clinics have second-generation equipment that is no more than three or four years old and well maintained. There is an expectation that government spending cuts will eventually push the endoscopy clinics out of the hospitals into privately run out-of-hospital facilities. The government will want only well established and larger centers to take over this business and GreeneStone is well positioned to grow from this expected trend.
Addiction Treatment - The private pay addiction treatment business is not well established in Canada, and there are only a handful of competitors that provide these services. Two of the biggest providers are also government hospital licensed facilities, that do both Ontario Health Insurance Plan insured services and privately paid services. Most hospitals have a mental health unit that can handle detoxification, but do not provide addiction treatment programs. There is only one large competitor that is very similar to GreeneStone Muskoka and it is on the west coast of Canada. There are hundreds of private paid facilities in the United States and they would be the major competitor for those with the highest ability to pay for service. Service in the United States that offer the same level of treatment that is offered by GreeneStone is generally 50% to 100% more expensive. GreeneStone believes that travel to the United States by those with potential travel restrictions as well as a higher cost will eliminate many U.S. facilities as competition.
The insiders own 26.12% of the company. The company has a book value of -$0.13 per share. GreeneStone is the only company out of these three companies that is growing currently. GreeneStone is expecting to be profitable by the end of second quarter. The company's market cap is currently only $7.7 million, which makes GreeneStone the highest-risk stock out of these three companies.