Tuesday, June 23, 2009

Health Care Behind Bars

Health care is a salient issue, but services in correctional settings are rarely discussed by politicians. Nonetheless, the health and well being of detainees and inmates are high on the priority list of law enforcement and corrections officials, who are mandated by the Constitution to ensure the physical and mental health of men and women behind bars. The burden is awkward for agencies that are better trained for safety and security tasks than to diagnose, prescribe and nurse. More importantly it is costly to maintain in-house health care programs. Consequently, in recent years there has been a shift to outsourcing health care functions in jails and prisons. The trend has fostered a crop of private correctional operations offering medical and behavioral health care services.

Conmed Healthcare Management (CMHM: OTC/BB) is a significant “up and comer” in the local detention center market. Two recent contract awards bring to six the number of new relationships Conmed has established in the last twelve months, including the Company’s largest contract in its history in Pima County, Arizona. Conmed now serves over 17,000 detainees in fifty-one county sites over seven states. The Company’s revenue run rate has expanded at an impressive rate from $26.0 million in March 2007, $34 million in March 2008 and $51.0 million in March 2009, representing 31% and 50% annual growth in the revenue run rate in the last two years, respectively. We estimate that the revenue run rate is now $52.5 million.

Shares of Conmed established a triple top breakout on early May 2009, suggesting a bullish price objective of $6.50 per share. This is well above our current price target for CMHM shares of $5.50 per share. Above average trading volume propelled the stock to a new 52-week high in trading in recent weeks week and establishing what we believe may be a new line of price support at the $2.90 to $3.00 price level. Fundamentals remain strong for Conmed as the Company continues to execute smartly on all detention center contracts.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has a Speculative Buy recommendation on CMHM shares.

No comments: