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Many investors believe that a company’s free cash flow (FCF) is one of the more important fundamental metrics in evaluating an equity investment. Some have argued that Wall Street’s focus is on revenue and earnings, which are more easily manipulated through accounting, without direct concern for calculating the actual money that a business is generating.

FCF is operating cash flow minus capital expenditures. FCF is the cash that a company made after paying out the money required to maintain and/or expand the business. Free cash flow enables a company to pursue acquisitions and growth initiatives, among other options. FCF may also allow a company to initiate or increase dividends.

I have screened the market for domestic mid-cap sized companies that are in the healthcare sector. Amongst them, I looked for those that have a current price to FCF of under 10.

Ticker
Company
Industry
Market Cap
P/FCF
AGP
AMERIGROUP Corporation
Health Care Plans
$3.18 B
6.95
Cephalon Inc.
Biotechnology
$6.08 B
9.56
Community Health Systems, Inc.
Hospitals
$2.41 B
6.32
Lifepoint Hospitals Inc.
Hospitals
$2.05 B
9.51
WellCare Health Plans, Inc.
Health Care Plans
$2.07 B
6.53
FCF can sometimes look deceptively undervalued when a company is under significant risk or where a company’s recent revenue and/or earnings are not from continuing business operations. While on its own, free cash flow is likely insufficient to base an investment decision upon, it is an important metric and one that is rarely provided. Such information can help you get a greater understanding of the fundamentals of businesses and identify proper investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: 5 Healthcare Companies Trading Under 10 Times FCF