NYSE: HLTH 0.16 +0.01 +4.8% Volume: 4,432 July 15, 2019

Zack’s Initiates Coverage of Northstar Healthcare Inc. with a Buy Rating

February 15, 2014
 

Northstar Healthcare, Inc.

NHC: Initiating Coverage Of Northstar

Healthcare With a Buy Rating, $2.75

Target.

Current Recommendation

Buy

Prior Recommendation

Hold

Date of Last Change

01/20/2014

Current Price (01/20/2014)

$1.19

Target Price

$2.75

(TSX: NHC)

INITIATING COVERAGE

We are initiating coverage of Northstar Healthcare, Inc. with a Buy rating. The company holds interests in and operates three ambulatory surgical centers in Houston and in Dallas, Texas.

It has recently acquired a fourth facility in Phoenix, Arizona. Northstar began its existence in 2007, and immediately encountered headwinds associated with the financial crisis and a conflict with a major payer. Despite these challenges, the company has experienced a gradual improvement in its financial performance since late 2010 and is now experimenting with some innovative business approaches that appear to be gaining traction.

We believe the company is an attractive investment, offering potentially high returns, albeit with high risk. Our rating is ‘Buy’ and our target price is $2.75 per share.


 

 

SUMMARY DATA

 

 

 

 


52-Week High

1.64

Risk Level

 

 

 

High


52-Week Low

0.15

Type of Stock

 

 

Small-Growth


One-Year Return (%)

23.2

 

 


Industry

 

 

Med-Biomed/Gene


Beta

N/A

 

 


 

 

 

 

 

 


Average Daily Volume (sh)

60,398

ZACKS ESTIMATES

 

 

 


 

 

 

 

 


Shares Outstanding (mil)

36.8

Revenue

 

 

 

 


(In millions of $)

 

 

 

 


Market Capitalization ($mil)

 

 

 

 

 


 

 

Q1

Q2

Q3

Q4

Year


Short Interest Ratio (days)

1.9

 


 

(Mar)

(Jun)

(Sep)

(Dec)

(Dec)


Institutional Ownership (%)

31.4

 


 

 

 

 

 

 


Insider Ownership (%)

35.1

2013

4.1 A

5.9 A

7.6 A

11.9 E

29.5 E


 

 

2014

12.2 E

13.1 E

14.5 E

16.2 E

57.9 E


Annual Cash Dividend

0.00

2015

 

 

 

 

85.5 E


Dividend Yield (%)

0.00

2016

 

 

 

 

121.9 E


Growth Rates

 

Earnings per Share

 

 

 


Sales (%)

25.1

(EPS is operating earnings before non-recurring items)

 


 

Q1

Q2

Q3

Q4

Year


Earnings Per Share (%)

N/A

 


 

(Mar)

(Jun)

(Sep)

(Dec)

(Dec)


Dividend (%)

N/A

 


2013

-$0.02 A

-$0.02 A

-$0.01 A

$0.00 E

-$0.05 A


 

 


P/E using TTM EPS

 

2014

$0.02 E

$0.02 E

$0.02 E

$0.03 E

$0.06 E


 

2015

 

 

 

 

$0.25 E


 

 

 

 

 

 


P/E using 2013 Estimate

N/A

2016

 

 

 

 

$0.35 E


P/E using 2014 Estimate

20.0

 

 

 

 

 

 



INITATING COVERAGE

An Introduction To The Company

Northstar healthcare (NHC) is a Canadian healthcare company that takes ownership interest in and manages

Ambulatory Surgical Centers (ASCs) in the U.S. Currently owned and operated ASC’s include:

üNorthstar Healthcare Surgery Center – Houston. The facility, located in close proximity to the Texas Medical Center, has 3 surgical suites, 2 treatment rooms (suitable for colonoscopy and interventional pain procedures), 7 pre-op beds and 8 post-op beds. Operations began in December 2003 with specialties in pain management, Ear, Nose and Throat (ENT), podiatry, orthopedics, general surgery, gastrointestinal and chiropractic medicine. The facility is 100% owned by the company.

üNorthstar Healthcare Surgery Center – Dallas. The facility was opened in 2005, acquired on January 1, 2011 by Northstar, and has specialties in pain management, ENT, podiatry, orthopedics and general surgery. The facility is owned by the PFSD Partnership and operated by MSID. The company holds management control and a 35% interest in the partnership, with the remainder owned by physician partners.

üThe Kirby ASC – Houston. This facility, which was founded in 2004 and acquired my Northstar in 2007, is located at 9300 Kirby Drive, in Houston, Texas, less than four miles from the Texas Medical Center. The facility includes specialists in pain management, orthopedics, sports medicine, general surgery, podiatry and ENT care. The company holds management control and a 25% interest in the Kirby Partnership.

The company was founded by current CEO, Donald Kramer, M.D., in May 2007 and taken public via a $140 million initial public offering. The proceeds of this offering were used to purchase an indirect interest of 70% in the Palladium Partnership, a limited partnership of physicians performing surgeries at the Palladium for Surgery facility, and a 60% interest in the Kirby Partnership, a similar limited partnership of physicians performing procedures at the Kirby ASC.

Northstar has a complex history that includes difficulties in connection with a rapidly changing reimbursement environment in the first 2 years of its existence, which were exacerbated by a conflict with a major insurer. As a result of these difficulties, the share price dropped dramatically, from an all-time high of $18.30 in 2007 to as low as $0.10 in late 2012. As the company’s share price has recently rebounded into the $1.00 range, we have taken this opportunity to examine the company and the conditions within the industry to ask whether a sustainable rebound might be in progress. While the company’s recovery is still in an early stage, we believe the company has taken some very positive and innovative steps to sustain the recover. We believe the shares are attractive for investors with a high risk tolerance seeking above average returns. As such, we rate Northstar a ‘Buy’ with a $2.75 price target.