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MedGrup (OTC
BB: CODX) Announces Continuing Demand For Its Services |
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We have been following MedGrup
since October of last year. The company has doubled in size every year
for the past four years, and has reported consistent profits. They are
the largest outsourcing service solely for medical chart coding in existence.
More and more hospital chains are turning to outsourced services to code
their charts due to their impartial nature. Billions in fines have been
levied on hospital chains are a result of fraudulent "upcoding" practices.
Since following the stock, the low
we have seen is $1.02, and the high is $4.87. Currently,
the stock is trading just under $2 per share, about 60% below its high.
Over the past several years hospitals
have been "downcoding" in order to avoid any potential liability. Outsourcing
provides impartial third party coding. Hospitals collect more revenue from
both Medicare and Insurance companies, thereby collecting fees more efficiently.
MedGrup has recently invested
a substantial amount of capital in the training of new coders. The company
now has seventy-one on staff. Each coder represents approximately $140,000
in potential annual revenues on the average. Therefore, once the new coders
are assigned to existing contracts, the company will be generating almost
$10
million in annual revenues, up from $4 million last year.
The company should easily exceed
$10
million in 2002 and be very profitable. At today's market price
the company is only trading at a $13 million valuation. It is just a matter
of time before somebody decides they want this stock. It is undervalued,
and investors with a long term outlook should eventually be rewarded from
these levels.
We contacted management last week
for an update on current business. We wanted to learn if the Attack
on America effected their operations. We learned that the floods
in Houston in August caused a temporary delay in the roll out of their
Hermann
Memorial Hospital Systems contract which was announced last Spring.
Several of the hospitals were closed due to flood damage. Other new contracts
were put on hold as a result of the Attack on America.
As a result, we now feel the company
will come in at the low range of our 2001 expectations. We previously felt
the company would come in with $7 to $8 million in revenues. We
now believe it will be about $7 million. However, bear in mind this revenue
stream is up from $4 million in year 2000. The company will achieve
a 75% growth rate during a recession- a remarkable achievement.
September quarterly numbers are expected
to be flat. The fourth quarter should be the largest quarter in the company's
history, and they expect to be running at about $10 million in annual sales
as we turn to 2002.
Earnings estimates for 2001 are in
the $300,000 to $400,000 range for the year, which equates
to about $.065 per share. A one time expense associated with the
departure of a senior member of the management team cost the company about
$250,000.
True earnings off operations will be close to $.10 per share.
Factoring in a 75% growth rate with
no debt and a strong balance sheet, this stock is cheap as compared to
health care stocks in general. Tax selling could put some pressure on the
stock before the end of the year, but for long term investors this company
looks great. Our long term price target for this stock is $6. We
believe this level could be achieved in the next bull market.
Here is the complete text of today's
news release for your review:
For Immediate Release
October 16, 2001
MedGrup Corporation Announces
Continued Demand For Services
Monument, Colorado, October 12, 2001…….
MedGrup Corporation (OTC Bulletin Board: CODX - news) today announced that
despite the overall downturn in the economy the demand for its services
continues to grow. The volume of outsourced coding and consulting
has increased substantially from last year and MedGrup’s new system, Code@Home™,
will begin generating revenue and economies of operation in Q4, 2001.
MedGrup continues to work closely
with VHA Southwest and their member hospitals. The results of the
first six months are in and, based on the success of MedGrup’s coding programs,
VHA Southwest is quickly introducing MedGrup to more of their members and
affiliates. Following its success with VHA Southwest MedGrup has
been invited to submit a proposal to VHA Incorporated to provide coding
services to 2,200 member and affiliated hospitals.
MedGrup recently conducted a review
of the Emergency Room charts at all acute care Memorial Hermann Hospital
System facilities. As a result MedGrup has been asked to provide
Emergency Room coding services at Memorial Hermann Hospital and anticipates
the go-ahead to provide Emergency Room coding services for the entire Memorial
Hermann Hospital System by mid to late November. The additional coding
services are to be covered by the existing contract with Memorial Hermann
Hospital System
MedGrup’s proprietary chart management
and transportation system, Code@Home™, has been installed in several facilities
in Texas and California. Kemmel Dunham, MedGrup’s VP of Support Services,
took the reins of the Code@Home™, project in June 2001 and was instrumental
in accelerating deployment. In response to client requests an electronic
chart archival capability has been incorporated with Code@Home™.
The Code@Home™ system is expected to have a very positive effect on FY’02
earnings.
MedGrup currently provides coding
services to all St. Joseph Healthcare System (headquartered in Orange,
California) facilities in Texas and four in California. MedGrup also
provides significant coding and consulting services to Hillcrest Healthcare
System in Tulsa, OK. Discussions are underway with both systems to
substantially increase MedGrup’s coding services throughout their facilities.
The additional coding services are to be covered by existing contracts
within both systems.
MedGrup’s sales force has doubled
since January 2001 and is expected to increase even more as demand for
services increases. Substantial interest in MedGrup services is being
generated at the two newest regional offices - St. Louis, MO and Newport
Beach, CA.
The devastating Houston flooding
caused by hurricane Allison closed Memorial Hermann Hospital on June 9th.
This account, annualizing nearly $1M for MedGrup, was stilled overnight
leaving in its wake an entire regional staff with infrastructure and equipment.
This event negatively impacted both the 2nd and 3rd quarters but MedGrup
still managed to grow substantially and generate a profit – albeit not
as substantial as had been expected. The hospital (partially re-opened
and reorganizing their HIM department) and the system are still recovering
from this event and as was mentioned previously we are ramping up to again
play a major role.
MedGrup has made a very substantial
investment in infrastructure during the past three quarters. In anticipation
of the expected substantial increase in business MedGrup has hired, trained
and equipped sufficient staff to handle an additional $3,0000,000 in business.
Heading up the management of MedGrup’s coding operations is recently acquired
Vice President of Operations, Steve Holmes. Steve has relocated from Texas
where he has twenty years of senior management experience including, most
recently, nearly seven years with Covenant Healthcare System where he served
as their Regional Hospital Administrator. Steve’s vast experience,
coupled with his leadership and organizational qualities, will prove invaluable
to MedGrup as the company continues to grow and expand its service offering.
MedGrup is a pioneer in the highly
specialized field of outsourced medical chart coding. The Company
employs highly skilled technicians, known as coders, whose job is to interpret
thousands of medical diagnoses and procedures and to convert them into
a series of numerical codes. These codes are required for Medicare/Medicaid
and health insurance reimbursement to service providers. The codes
must be used for every outpatient, inpatient, and emergency room visit
at all U S hospitals, clinics, and physician’s offices. An estimated
1.1 billion such visits were recorded in the year 2000.
The foregoing may contain statements
that plan for or anticipate the future. Forward-looking statements
include statements about the future of the medical services industry, statements
about our future business plans and strategies, statements about our financial
condition and results of operation and most other statements that are not
historical in nature. Forward-looking statements are generally identified
by the words “anticipate”, “plan”, “believe”, “expect”, “estimate”, “grow”,
and the like. Because forward-looking statements involve future risks
and uncertainties, there are factors that could cause actual results to
differ materially from those expressed or implied. These factors
include general economic and business conditions affecting the medical
services industry, financial strength of the public and private healthcare
system, government regulation or legislation, the costs and pricing of
our services and the level of demand for our services. Reported results
should not be considered an indication of future performance. Investors
should not rely on these forward-looking statements.
For further information contact:
MedGrup Corporation, Investor Relations, (719) 481-1500.
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