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Medical Facilities Corporation: Market Overreaction Presents A Strong Investment Opportunity

A.C.T. Investing profile picture
A.C.T. Investing


  • MFC’s undervaluation as compared to industry peers, obscurity (small-cap, low coverage), recent dividend cut, and historically low share price signals an investment opportunity.
  • We think MFC has too much debt but not an unserviceable level. Interest rates are low and the healthcare services industry carries only a low-to-moderate investment risk.
  • MFC has been experiencing declining margins and we think they have bottomed-out. Assuming no-growth, we think the intrinsic value of MFCs shares lies somewhere around USD$6.68.
  • The market is overreacting and with a substantial investment horizon, we are bullish on MFC.

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Screening for Value

Medical Facilities Corp (OTCPK:MFCSF) is trading at a 10-year low, has a price-to-book ratio of 0.75x, and is trading at forward multiples substantially lower than comparable companies. We don’t normally like to use forward-looking statistics, but it was necessary for this company due to their recent losses. MFC is obscure- a micro-cap stock with little analyst coverage and a corporate structure that is not easy to understand for the layman. Their recent dividend cuts (press release) from $0.844 annualized per share to $0.28 have driven the poor market sentiment towards this stock. This leads me to believe that there may be a strong investment opportunity in this stock driven by its poor valuation and the obscure nature of this stock.

The Valuation Model

The valuation model values the free cash flows of the corporation attributable to shareholders at the corporation’s cost of capital and assumes no growth. We calculate zero-growth cash flows from a historical average of adjusted EBIT margin multiplied by trailing 12-month revenue. Then, we add cash, subtract debt attributable to shareholders, and subtract the effect of diluting financial instruments to obtain a valuation of the firm.


Description- MFC is a Canadian incorporated holdings company with controlling interests in 13 hospitals throughout the USA. Of these, 5 are specialty surgical hospitals (SSH), and 8 ambulatory surgery centers (ASC). SSHs are specialized surgical centers that perform scheduled surgical, imaging and diagnostic inpatient procedures where patients may stay overnight, if necessary. ASCs provide outpatient procedures where patients stay for less than a day. MFC generates revenues from the provision of facility services and non-controlling interests of its facilities are primarily owned by physicians in the hospitals. Its growth strategy is both

This article was written by

A.C.T. Investing profile picture
Inspired by famous value investors. I look for obscure companies, traditional value opportunities, or cheap growth opportunities. I hold an HBA from Ivey Business School, Western University in Ontario, Canada.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MFCSF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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