In what can best be described as a possible return of completely rational behavior, CorVel’s stock is entering the stratosphere. From above.
The decline of the managed care company’s stock price and market cap from levels that can best be described as “way too high” appears to be one of those all-too-rare instances of the market finally figuring out that just because a company’s stock price is high does not mean it is worth it.
As I’ve noted before, CorVel’s valuation was all out of whack. And I’d suggest it still is.
Let’ss review, shall we? CorVel talked about a stock buyback last summer that never really got going. That was followed by CEO Gordon Clemons selling 70,000 shares of stock, after which the stock price went up. Then, CorVel bought TPA Hazelrigg for $12 million, a 6x EBITDA valuation. Next, it’s stock went up some more. (That’s what really got me confused.) Then, analysts cut earnings projections, and the stock went up even further. Boy, was I confused.
Now comes word that CorVel’s California TPA customers are terminating contracts for managed care services. Gee, that was a tough one to predict – a managed care company buys a TPA (Hazelrigg), and the TPAs that Hazelrigg competes with decided to stop buying managed care services from the new parent.
Talk about a bolt out of the blue!
Next, earnings were announced that bettered the year-ago quarterly numbers by a good bit. The stock declined.
Now, CorVel is trading at about $30 a share, down from a high of $48 and change in late December. Better, but the P/E is still a quite generous 26, a valuation typically reserved for high-flying growth stocks, not firms experiencing 6% annual growth.
What does this mean for you?
I have no idea.
Arlene Hazelrigg stopped paying benefits to nurses in 2002, making them “independent” after insisting they bill 10 hrs per day. I’ll bet she laughed all the way to the bank when Corvel bought her out.
Joe, you are absolutely correct about Corvel! Unfortunately, their situation is not too uncommon in todays marketplace as we see more of the “big players” getting involved in business lines that will ultimately “shoot them in the foot” with who they want as clients. Is this not similar to the First Health/Coventry acquisition of Concentra? Will the net results not be the same when the clients figure out that the network is also the competitor??