Yesterday, 9/3/09, the COO of Amedisys (AMED) left the company. Ditto the CIO. AMED tanked more than 25% on the news. It ended the day down about $10 at $34.04. The CFO did not quit. There does not appear to be anything demonstrably wrong with the company. The CEO is still there. In fact it seems the COO left because he was not going to be made CEO as quickly as he had been led to expect. In other words, he was a very disappointed, very ambitious corporate officer. The CIO's job is being split into two different jobs. Perhaps the CIO left in response to a request that she cede some of her power. Perhaps the CIO was a big supporter of the COO (and vice versa).
AMED gives every indication of a great company. It is now trading at about 7 * 2009 earnings. This seems to be a bargain. It looks even better when you see that the analysts have raised their earnings estimates for FY 2009 by more than 15% over the last 90 days. They have raised FY 2010 estimates substantially also. AMED beat earnings estimates by almost 25% last quarter. AMED has beaten estimates each of the last four quarters. Good signs about a company don’t get much better.
Why then did it tank so badly? The answer is simply that the rash actions of a couple of ambitious corporate officers made the company look as if something might be drastically wrong. Taking time for a more sanguine inspection, this does not seem to be the case. The CFO did not quit. The CEO did not quit. The company’s prospects are still great. The COO left at least partially because the CEO did not intend to leave soon, so AMED still has good continuity with both the CEO and the CFO still there (as well as everyone other than the COO and CIO).
This does not look like a company in trouble. It looks like a victim of a drastic over reaction to some unfortunate news. In all likelihood the company will go on as before. It will do great. The only question remains how to act. I say buy. Sidoti raised the company to buy this afternoon based on the new lower price. Likely a few more analysts will up their ratings of AMED today (9/4/09) based on its new lower price. This will likely cause a good push upward in price over the near term. There is overhead resistance at $36.75 and $38.08. Judging from the size of yesterday’s seemingly unfounded loss, I would expect the price to rise at least 50% from the 9/3/09 closing price. This means it should make it over the $38 mark, which is a point of good support/resistance. It may even do this Friday. See the chart below.
I actually see no reason why this stock should not return to its recent price of about $44 quickly. However, the equities markets have generally been trending down lately, so I would prefer to be conservative in my estimates. I think AMED should return to at least $38 within the next two weeks. I do not think high strung, ambitious officers are really a sign of a poorly managed company. Good luck with this trade.
Disclosure: I went long AMED yesterday.