Not many investors are familiar with HMS Holdings (HMSY), but they should have been. The stock was less than $1 a share a decade ago and is $30 now.
An easy weay to think of HMS is it prevents healthcare fraud, such as sending out double-payments for. The company primarily works with Medicare and Medicaid and has been working its way into commercial coverage since 2004. Its uses databases and analytics to detect fraud. MHS gets paid 10%-12% of the funds it revovers in recovery audit contracts, or RACs (source: Morgan Keegan).
Last week HMS broke out when it announced the purchase of HealthDataInsights for $400 million. HealthDataInsights is the exclusive auditor for Medicare in 17 states, covering 22% of all Medicare claims. This deal is huge for HMSY as it will likely take 2012 revenue from an estimated $435 million to $520 million. and profits from an estimated $0.67 to $0.98. The company will bring in around $360 million in sales this year.
I like this deal because $384 million of the $400 million is in cash (the rest warrants or HMSY stock options). HMSY has $100 million in cash and will borrow the rest.
HMSY has one of the nicest ten-year charts around. I’ve kinda tracked this company for many years, and didn’t buy it in the past because (1) it wasn’t on sale and (2) I didn’t understand the concept.
This stock has just chugged higher. It really looks like a quality investment. The stock has compounded at 48% a year during the past ten-years.
The reason this stock is on my radar is because it is selling around its Fair Value. There’s been a lot of stock market volatility this year and a correction could bring the shares down to a more manageable $25 level. I need something to buy when the market is down. HSMY could be the ticket.
