Jordan Andrew

Contrarian, long/short equity, research analyst, healthcare
Jordan Andrew
Contrarian, long/short equity, research analyst, healthcare
Contributor since: 2012
Company: Independent
It is also incorrect to use total revenue as it includes other items not related to the core business such as Arsenal Rent and Epocrates. You need to focus only on Business Services line excluding these figures to do the type of analysis your are doing. Please see the below link to view the correct analysis. 1Q15 revenue per physician was up by approximately 3.4% even after adjusting for ~$1 mill contribution from RazorInsights acquisition.
Your analysis fails to incorporate cross-selling of additional products (higher take rate), and the varying take rates between the small and group segment relative to the Enterprise. On a per physician basis, small and group segments have a much higher take rate and ROI relative to Enterprise. 2014 was a very heavy Enterprise year relative to 2013 with the Ascension win, which is why revenue per physician stagnated. While the correlation between physician growth and revenue growth is there, it is not perfect if you look back historically. The fact is that a solo physician is equivalent to 2-3x the number of enterprise physicians depending on the mix services. Simple assumption is that Ascension pays 2% of collections while a solo practice will pay between 4-8% depending on cost of collection and collection value. As the bookings mix shifts toward the small and group side, you should expect the revenue per physician number to increase (as what we saw in 1Q15). If you run the historical analysis of the average collector rate based on mix, you will see that pricing is stable and consistent with the increase % of Enterprise customers. On the competition side... If you look at ATHN in a silo relative to EPIC and CERN than you are correct. However, by doing so, you ignore the ~80% share of the ambulatory market that is up for grabs. The ambulatory/outpatient opportunity is where the growth is for Health Systems and for ATHN. ATHN has a superior RCM product and arguably one of the best sales forces in all of Healthcare IT.
Thank you very much! Deckers (DECK) is also paying off nicely as well.
I am still a believer in Baidu in the long run, as it its the best pure-play on Chinese internet growth there is. The company is clearly going through a period of transition between traditional desktop usage and mobile. The company can continue to grow in excess of 25% per year for the next 5-years, while trading at 15-17x forward earnings makes it a compelling investment opportunity. While it is always nice to get a short-term move in your favor, this idea is clearly going to take some more time to play out. The thesis still holds, I continue to be long.
Thank you for your comment. I just ran the numbers quickly and assuming no growth for the next ten-years and the Sealy acquisition goes through, FCF should stagnate between $185-225 million, which is where its currently. The FCF figure factors in taxes, working capital, depreciation and capital expenditures. If this is the case my model estimates an average fair value estimate of $20/per share or a method valuation range of $18-22/per share.
"This makes the company susceptible to change in China's policies in the future. If the Chinese government opens up and allows more foreign competition, then Baidu could be in trouble. Currently trade wars are flaring up between China and US on a number of issues like steel, solar and wind turbine imports. Europe is also seeking to impose duties on imports of Chinese solar panels. China could be forced to give concessions like providing better access to Western companies."
Disclosure: I am Long BIDU
With that being said, I believe to compare solar panels and internet search is a stretch. While you bring up a true point about trade wars flaring up between China and the U.S., this only applies to companies that manufacture and export physical goods. This argument is not applicable to BIDU as they do not have a physical product to export, and their primary market is domestic. Further, I would argue that the last market Chinese officials will open up fully to outside firms is the internet and search. As long as they want to keep control over information flow.
Thank you for commenting! I agree with you, the SEC and accounting firm business is a tough issue. While this does impact the price of the stock in the short-run, it does not have an impact on the long-run value of the business. It is nearly impossible to price in this type of risk as it is largely exogenous. If the SEC moves forward and shares of Chinese companies get delisted in the US, the negative cost US investors will suffer will more than outweigh the benefit. Instead, the SEC should be focusing on Chinese reverse mergers exclusively and figure out a way to work with China offline to resolve the accounting issues for the larger, well-established companies such as Baidu.
Thank you for your comment on both articles! I would not describe the acquisition as being dilutive because the denominator is remaining constant. However, you are correct that the increase in interest expense will have a direct, negative impact on Tempur-Pedic's bottom line. While this is a negative from a price-to-earnings multiple perspective, I believe that investors price stocks more so on a multiple of EBITDA. This being the case, you can clearly see the growth in EBITDA of the combined companies.
Thank you for your comment and I would be more than happy to clarify. The "call option" that I referred to is the basis for the article, 2 mattresses for the price of 1. Given where Tempur-Pedic shares were trading at the time I wrote the article investors were not pricing in Sealy as a part of Tempur-Pedic. Instead, they were pricing Tempur-Pedic on a stand-alone basis. This being the case, there was no downside to Tempur-Pedic if the acquisition fell through. However, if the acquisition were to close, then investors in Tempur-Pedic shares would be able to benefit from the upside of the combined companies. Put another way, the equity value of Sealy was not being reflected in the shares of Tempur-Pedic. Therefore, there was little-to-no downside to investors if the acquisition fell through, but decent upside should it be successful. The risk/reward profile related to the acquisition and where Tempur-Pedic was trading at the time I wrote the article was similar to a call option. I hope this makes sense!
Hi Thomas, thank you for the comment! I agree with you, to be a buyer of Baidu you need to be a believer in the overall demographic trend in internet search, advertising and mobile. If you do, then it is easy to see how shares of Baidu reclaim their old highs and likely make a new one in the coming years. I believe any pullback under $100 is a good entry point and provides investors with a nice margin of safety.
Thank you for your comment and the positive feedback! I am a strong believer in full-disclosure. I do not understand why readers criticize writers over being bias when disclosing their long or short positions, as long as the article has substance. In my opinion, everyone is bias when it comes to writing an article about a long or short idea. As a reader, I prefer to see that the author disclose that they have a position in the stock they are writing about. Put your money where your mouth is, right? Thanks again!
Thank you for your comment. The problems at Tempur-Pedic over the past year are well known. Management has been transparent about their intent to increase sales and marketing costs in order to address increased competition. On a forward looking basis, I would argue that the decline in SCSS sales and marketing expense is good for Tempur-Pedic. If Tempur-Pedic is successful in its sales and marketing spend, than it is likely that Tempur-Pedic will win back market share from SCSS. Management's recent guidance confirmation should provide investors with peace of mind knowing that the situation is stabilizing.
Hi Alex, thank you for your comment. I read your article and you bring up a good point and one that I have carefully considered. As I mentioned in my article, I assume that Tempur-Pedic will have upwards of $2 billion in debt after the acquisition. Over the last few days investors were given a clearer picture on what composition of the debt will look like. Specifically, Tempur-Pedic was able to place $375 million in 144A securities due in 2020 at 6.875%. They also entered into a new $1.3 billion revolving credit facility where Tempur-Pedic will pay in between 300-400bps over LIBOR. Sealy meanwhile has about $750 million in total debt which they are paying in between 10-12%. Tempur-Pedic will likely use the first $375 million to pay for the equity in Sealy, and use a good portion of their revolver to retire the majority of the Sealy debt they are assuming. After all, it does not make sense for Tempur-Pedic to pay 10% on Sealy's debt when they are only paying 300-400bps over LIBOR on their credit facility.
When it is all said and done, Tempur-Pedic will likely be paying, on average, 6% on about $2 billion in debt which results in $120 million in interest payments per annum. Over the last twelve month period, Sealy has generated about $117 million in EBITDA and $50 million in free cash flow. So while you are correct in saying that the company is barely profitable, it is really more of a cash flow story than anything else. Over the last twelve month period, Tempur-Pedic has generated about $320 million in EBITDA. Assuming no growth for either company, the combined firm should generate EBITDA of approximately $437 million next year. This equates to a 3.6x EBITDA/Interest coverage, which leaves plenty of cash available for reinvestment and equity holders. Even if synergies do not materialize as anticipated, the combined company still should generate more cash than either company could on a stand-alone basis.
Investors have been viewing the increase in debt and pricing the stock as though Tempur-Pedic was not going to receive any incremental EBITDA or cash flow from Sealy. This is likely due to investors focusing on Sealy's lack of earnings and assuming this also means a lack of cash flow. This is a misconception. In fact, Sealy's $117 million in EBITDA is almost enough to cover the annual interest payment of the combined firm. Put another way, when looking at EBITDA, Sealy will pay for its own equity value in three-years and the combined firms interest payments through 2020. Sounds like a great deal for Tempur-Pedic and at $30/per share, a great buying opportunity.
Thank you for your comment. You are correct about Chieftain's ownership history in Tempur-Pedic. However, they have been more aggressive in their share purchases as of late. I would imagine that Chieftain has had extensive conversations with Tempur-Pedic management and that Chieftain is extremely confident in the near-term outlook for the company.