Wednesday, August 13, 2008

Amedisys (NASDAQ:AMED): Bounce candidate?

Two firms defending Amedisys (NASDAQ:AMED) this morning following 18% downside move yesterday following a negative Citron Research piece:

- Oppenheimer notes they have reviewed a report on AMED by Citron Research. The report primarily questions the company's accounting for receivables and its ability to generate greater internal growth than its peers. After speaking to management and analyzing the supporting details of the report, the firm believes the report is irresponsible in its innuendos of an underlying problem at Amedisys. Furthermore, they believe the stock's reaction to the report is significantly overblown. Regarding the question of A/R management, Amedisys has recently made a number of acquisitions, which can make it difficult to interpret the numbers. However, most importantly AMED's OCF as a % of EBITDA was 84% in '07, the highest of any company we cover.

The report implies AMED's revenue per admission("pricing") growth is excessive relative to its
peers. However, this is actually due to the company's growth strategy, which focuses on increasing its re-certifications as its agencies mature. This has led to an increase in episodes per admission, which has been the true driver of revenue-per-admission (not "pricing"). Opco notes they continue to have the utmost confidence in the current management team. In their experience, AMED has always been very forthcoming and transparent with the details it provides around the business.

Overall they believe the accusations are unfounded. While clearly this will present an overhang in the short term, when the dust settles they believe the stock will offer a compelling buying

Maintains Overweight and $73 tgt.

- BB&T Capital Markets also defending AMED: - While they are normally not in the habit of writing response notes, the severe stock reaction compels them to give their take on the situation. Firm notes they had the opportunity to speak with management yesterday and while they were deeply troubled by the reaction of their stock, they reiterated confidence in their quarterly results, and their outlook for the company remains unchanged.

Notablecalls: AMED has a 30% short interest. I think this one bounces on these defenses. A close 20% downside move in reaction to Citron's call almost never lasts.

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