I checked the stock price yesterday; CorVel dropped a bit more, and is now below $26, but still enjoying a PE of 19+. That’s down from the 38 PE from last fall, but still a bit of a premium compared to the broader market.
Why?
Here’s the latest…
First, revenues are up as are profits. The most recent quarter was a good one, with revenues up $4.5 million and profits up over $2 million from the prior quarter.
The quarterly conference call was fairly brimming with optimism; record earnings (up 70% from the same quarter in 2006), improved margins in case management, great results from Network Solutions, and the Coventry acquisition of Concentra’s managed care ops makes CorVel one of only two national PPO players.
The company also recently announced a stock repurchase plan for 100k shares that may be bought in August – CorVel has talked a lot about stock repurchasing in the past, but actual repurchases have been rather limited of late. And this announcement is really just reiterating a plan announced months ago.
Solid results to be sure, and a confirmation of a plan to buy back shares, which makes the stock price decline somewhat puzzling.
So why the recent decline?
The strategy appears to be to grow network revenues (the most profitable line – by far) while using cash to buy TPAs in an effort to become a full-service comp administrator. The most recent deal is not exactly a blockbuster, but gives the company a footprint on the East Coast.
As I’ve noted before, CorVel is running a very risky race – trying to become a full service national TPA while selling services to the same market. Here’s what CEO Gordon Clemons said –
“There are certain Markets that we can’t reach unless we can deliver Claims Management Services and in other Markets we work a lot with our current customer base in the TPA market so our total program in the Enterprise Comp sector is fairly complex…”
This appears to be an effort to convince current TPA customers that CorVel is only going to compete in regions where they don’t have TPA customers. That’s kind of strange, as many TPAs service customers in multiple locations.
What does this mean for you?
If you are a TPA customer of CorVel’s, I’d get on the phone to find out if they plan on competing, and if not, how they will avoid competing with your firm for business.
