Cross Country Healthcare Might Be Just What the Doctor Ordered

Cross Country Healthcare (CCRN) provides staffing services to hospitals, clinics, pharmaceutical and biotech companies, and HMOs. Nursing and related services provided 80% of 2007 revenues. Both traveling and per-diem nursing services are offered. Clinical research staffing (13%) and human capital management services (7%) made up the remainder of sales last year.

Earnings per share grew from $0.47 in 2005 to $0.65 in 2006 and finished at $0.76 in 2007. Value Line and Zack's are looking for $0.80 and $0.82 for 2008 respectively.
The aging of America puts this company in a good position to grow over the long term as the need for nursing services is likely to expand greatly over time.

This is a small-cap stock with only about 31.58 MM shares outstanding. The balance sheet is strong with only $39.5 MM of total debt ($1.25/share). Their current assets / current liabilities = 2.95x.

Cross Country Healthcare Inc: Key Ratios

Source: MSN MoneyCentral

Cross Country has typically sold for P/Es > 20. The only year it averaged less of a multiple was 2003 when its P/E was 16.5x. Buyers of these shares near the low of $9.50 saw the stock price more than double to $19.90 within 12 months.

Today's quote of $12.49 is just 16.4 times trailing EPS and 15.6 times Value Line's estimate of $0.80 for 2008.

CCRN's price/book value has normally run at least 1.4x and its price/sales has typically been 0.75 or higher.

A rebound to even 20 times earnings leads to a $16 target by year-end. 0.75 times expected 2008 sales would bring these shares to > $18. Even 1.4 times book value should see CCRN back to > $18 as well.

Is a goal of $16 – $18 reasonable? Sure. Cross Country shares have actually hit peak prices of $16.40 - $24.10 in each calendar year from 2001 right through 2007.

Risk? At today's price of $12.49 these shares trade below the lows hit at any time during 2004-2005-2006-2007 when sales, earnings, cash flow and book value were all lower than the current figures.

At year-end 2007 some well regarded 'value' managers held big positions in CCRN:

• Artisan Partners held 13.9%
• Wells Fargo owned 12.2%
• Dimensional Fund Advisors held 8.76%
• Royce & Associates held 8.08%
• Barclays Global Investors owned 5.03%
• Vanguard Group held 3.11%

Officers and Directors owned 6.7%.

With CCRN shares near five-year lows despite wonderful fundamentals…
Cross Country Healthcare shares may be just what the doctor ordered for your portfolio.

Disclosure: Author owns shares in CCRN.

Comments

[Donald E.L. Johnson]

Morningstar.com gives the stock three stars, which means it's close to M*'s fair value estimate of $14. It says consider buying the stock at $10.50 and selling at $18. The firm says: "Still, Cross Country is starting from behind. Close competitor AMN Healthcare AHS has been enjoying a cyclical upswing for two years because of better recruiting and a more focused strategy. To stem the flow of nurses to competitors, Cross Country may have to increase marketing expenses and pay rates for temps. Although this will weigh on short-term results, we believe these costs are necessary to strengthen Cross Country's recruiting abilities."

While the daily chart says sell, the weekly says buy and the bullish point and figure chart objective is $18.50 with the stock at $12.20.

[Paul Price]

I own AMN Healthcare [NYSE:AHS] also.

Both appear very cheap and with substantial upside.