A Careful Growth Strategy

By Sham Gad | March 29, 2010 AAA

Amidst all the economic mania today, there still exists interesting opportunities for investors to investigate. Such is the case with Continucare Corp (AMEX:CNU), a small healthcare organization that does a few things very well. The company's two main services include primary care medical services through its network of medical centers and management services for independent private practice primary care physicians. The company's operations are in Florida, which despite its real estate troubles, continues to have a large migration of senior citizens seeking its harmonious and peaceful climate.

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Small But Large
Despite being a $230 million business, Continucare is one of the largest medical providers in Florida with 18 staff model medical centers and 21 independent private practice offices.

In addition, the company launched Seredor Corporation; in August of 2009, with the acquisition of two sleep disorder facilities. These acquisitions represent a key growth opportunity for Continucare driven by a medical condition known as Obstructive Sleep Apnea, or OSA. Over 18 million Americans are afflicted with this breathing disorder while sleeping and it poses a severe risk if left untreated.

Strong Business Model
The company works with the nation's leading HMOs including Humana (NYSE:HUM), Aetna (NYSE:AET) and UnitedHealthcare (NYSE:UNH). Continucare's revenue is dominated by "risk" patients. Over 97% of the company's revenues are derived from Medicare and Medicaid patients. Even better, 90% comes from Medicare, which appears to have gotten a favorable long-term outcome in the healthcare reform bill.

Revenues have expanded from over $112 million in 2005 to $281 million at year end 2009. While net income in 2009 was less than the 2005 figure, net income in 2009 was up by over 40% from 2008 and nearly triple the $5.3 million earned in 2006. Yet both operating income and cash flow from operations have been on a steady climb upward over the same five-year period. The company's balance sheet is pristine with $14 million in cash and $200,000 in debt. Humana, one of the leading providers of government sponsored medical plans has recognized Continucare for four consecutive years with its prestigious Five Star Award.

A Healthy Future
Continucare seems on a path of continued execution of its growth plans. In addition, one board member owns over 40% of the company, a major plus in the interests of shareholders.

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