Little-known Pediatrix Medical Group, thanks to its growth and the turmoil at other physician practice management companies, is emerging as the most valuable PPM on Wall Street.
On Aug. 7, Pediatrix, a Fort Lauderdale, Fla.-based neonatology and perinatology PPM, replaced MedPartners as the No. 1 PPM in terms of stock-market value. Pediatrix was valued at $633.7 million, with its 15.2 million shares selling for $41.69 each. MedPartners, once worth $3 billion, was valued at $613.6 million, with its 188.8 million shares selling for $3.25 each. Pediatrix since then occasionally has fallen behind MedPartners but has remained at least a solid No. 2.
Pediatrix's ascendancy is a delicious irony for Chief Operating Officer Lawrence Mullen. He remembers when Wall Street analysts wouldn't pay attention to his company because it wasn't a multispecialty model like MedPartners, PhyCor or FPA Medical Management. All three companies last year had market values of more than $1 billion.
Now analysts are praising Pediatrix and the single-specialty model in the wake of MedPartners' and PhyCor's financial struggles and FPA's bankruptcy filing.
CIBC Oppenheimer analyst Lori Price knocks the same strategy analysts used to love when she says PhyCor buying "high-quality, high-image" multispecialty clinics is "fundamentally in conflict with the goals of managed care."
Pediatrix's Mullen says: "For a long time we were in the same boat as everybody else." But, he adds, "our earnings have been consistent. We've never stumbled; we've never missed earnings expectations. I think last quarter, when we exceeded expectations at the same time everybody was going south, was the moment the market started to understand us."
On July 30 Pediatrix's stock leapt to $39.88 from $33.88 after the company reported earnings of $7.1 million, or 45 cents per share, on $46.1 million in revenues for the quarter ended June 30. In the year-ago quarter, Pediatrix earned $4.8 million, or 30 cents per share, on $30.6 million in revenues.
How can Pediatrix trade for $40 per share at a time when few PPMs can eke out a price above $10? There are a few differences between Pediatrix and other PPMs:
The company acquires the right to provide services to a hospital, and the physicians get paid a salary by Pediatrix, rather than having a percentage of income taken out as a management fee. Pediatrix collects all bills; every business operation is done by the central office.
Mullen says the company isn't getting a big head over its No. 1 ranking. After all, Pediatrix still hasn't regained its peak value, and a market value of $600 million is relatively small in an age of weekly $40 billion mergers.