NightHawk Radiology Holdings, Inc.: No fly by night
NightHawk Radiology Holdings, Inc. (Nasdaq: NHWK)
Coeur d'Alene, Idaho
http://www.nighthawkrad.net/
52-week low / high: $16.75 / $28
Shares Outstanding: 30.19 million
Market Capitalization: $636.06 million
If you crashed your motorcycle in the middle of the night 10 years ago and suffered head trauma, many hospitals would have been pressed to provide radiology services rapidly and effectively. Today, these hospitals are increasingly turning to NightHawk Radiology Holdings, Inc. (Nasdaq: NHWK). The Coeur d' Alene, Idaho-based company harnesses the Internet to provide outsourced health-care services to hospitals based in the United States.
Radiologists who previously worked the graveyard shift can now get a good night’s sleep thanks to NightHawk, which allows hospitals to outsource initial reads of ultrasounds, MRIs, X-rays and other scans to American-trained and certified radiologists based in Switzerland and Australia. The firm says the doctors usually return their findings in less than 30 minutes. Currently, the company provides 24-hour, seven-days-a-week service to 1,350 hospitals in the United States.
“Why would a practice need to have one of their doctors on-call if they are only going to get one to five patients a night?” CEO Paul Berger said in a statement on the company’s website. “We are a better value than having one of their doctors not working at optimal capacity the next day due to loss of sleep.”
NightHawk’s results have been encouraging, but the acquisition of Midwest Physician Services, LLC in July has slowed profits. In the recent third quarter ended Oct. 30, the firm’s third-quarter revenue soared 79% to $45.2 million, in line with analyst estimates of $45.6 million and up from $25.2 million a year earlier. Organic revenue growth was 24% during the quarter. The firm’s quarterly profit totaled $3.8 million, or $0.12 per share, below Wall Street projections of $0.30 per share and down 32% from $5.6 million, or $0.18 per share, during the prior-year period.
During the company’s quarterly conference call on Oct. 31, COO Tim Mayleben said the Midwest Physician acquisition “will be a critical differentiating factor for Nighthawk, further positioning ours as the industry's premium and most innovative brand.”
The company’s third-quarter operating expense rose to $37.4 million, up 120% from $17 million. NightHawk’s cost of revenue has similarly increased to $19 million, and up 98% from $9.6 million.
Wall Street analysts are fairly positive about NightHawk. The company’s average recommendation rating is 2.3, with 1.0 being a strong buy and 5.0 being a strong sell. Of five brokers, the average price target is $26.50. For 2007, analysts expect earnings of $0.95 per share, compared with a loss of $1 per share in 2006. During fiscal 2008, analysts are predicting 40% sales growth and 39% earnings growth. At Sept. 30, the firm’s year-to-date cash flow from operations was $17.5 million, up 20% from $14.6 million a year earlier.
NightHawk’s stock has traded at about 17 times its projected earnings over the last 52 weeks, which Thomson Financial says is a 10% discount to the health-care services industry. The company is also trading below the average analyst price target of $26.50 and its 52-week high of $28.
NightHawk dominates its sector, although there are many small players and few barriers exist to prevent players from entering the field.
“At this point, this is an industry that didn’t even really exist 10 years ago and it’s been enabled because of technology,” Eric Marshall, Hodges Capital Management’s senior vice president, said during a Bloomberg Television interview in October. “You’re starting to see a few smaller regional players pop up here and there, but there’s no major competition out there yet. They’re kind of on the forefront of what they do.”
Note: NightHawk Radiology Holdings, Inc. (Nasdaq: NHWK) is on the “Watch List” of Growth Report, a subscription investment newsletter from Business Financial Publishing, which also publishes SmallCapInvestor.com. As a Watch List company, NightHawk displays many characteristics found in successful stock winners, and is being closely monitored for possible inclusion in the Growth Report portfolio at a later date.
