Round Up: CEOs with Cajones Edition

by JT McGee

Everyone loves a good executive team.

Good corporate leadership chases alpha! They go after the growth, even if it means leveraging up with loans with a 13.5% interest rate, right?

Ahh yeah they do.

One of my favorite little health care stocks just completed an acquisition of one of my other favorite health care stocks. Metropolitan Health Networks (MDF) agreed to acquire Continucare Corp. (CNU) and this guy right here is stoked like an egg yolk.

Metropolitan Health Networks is going for the gold. They’re leveraging up with $240 million in low interest rate debt plus a second lien note at a current rate of 13.5% per year. Yeah man, those are credit card interest rates! Real CEOs buy up other firms regardless of the rate because debt is good, cash is bad, and growth is awesome sauce.

Add up the TTM operating income, net out taxes, and the combined entity is going to bring home $.72 EPS. Normally conservative, the last conference call said they could have cost savings worth $5 million per year. Run rate, dudes! That’s an EPS of $.80

You should’ve seen me when I was tuned into the conference call. Fist pumpin’ Jersey Shore style when an analyst asked the question that was on top of my mind…”So that’s $5 million run rate past 2011?” And the CFO, I think it was, said, “Chyeah buddy!”

And Wall Street was letting this company go for $4.10 earlier this week. No more! Back over $5 because everyone knows that debt is the fastest way to get rich—debt is the powerhouse of real Entreleadership!

I’m digging this company. I love it. I ♥ it.

Here’s to hoping Europe freaks out again so I can back up the truck before some LBO company steals my shares from me. This is a company I’d prefer to own forever. Shoot, even if they Dave Ramsey me and never reinvest another dime into acquisitions this thing will earn $1 per share 5 years out with zero debt. And it’s only $5 a share.

Plus, the firm’s dividend policy is awesome. The executive team knows that no one likes dividends, so they go for sharebuybacks. MDF went from 51 million shares outstanding to 40.75 million. Awwww yeah!

“Capitation” is the word of the day. “Medical loss ratio” is the phrase of the day. “Structural advantage” is the phrase of this blog, and the driver of this macro play on low rates.

If I were a real financial analyst I’d give this thing an overweight rating. I don’t even want to tell you how “overweighted” it is in my portfolio right now. I’ll give you a hint: It’s bigger than 50% of my portfolio. *GASP!* Come on, dudes, diversification creates zero outliers. We’re in it to win it! I just had to take my $6.25 per share from CNU and plow it into its new owner, MDF. And I love the partial shares of MDF I got from the buyout, too. Shoot…this was a great way to end mid-terms week.

Awesome Stuff Recently Shared with the World

InvestitWisely had a post about the PE10 or CAPE, whatever you want to call it. I always like when someone suggests, even passively, that investors should consider valuations BEFORE discussing asset classes. High fives all around, although I may have been a little critical in the comment section.

Sam was a paid protester. What a joke! This guy hates freedom.

Andrea isn’t frugal. Which is a hell of a revelation, considering she’s responsible for 99% of Apple’s sales each quarter. 😉

Darwin’s laid off friend makes just as much being laid off as he would being employed. What’s the rush to find a job when you get 99 weeks?

How about a great post at DQYDJ about how personal checks are obsolete.

ObliviousInvestor says it’s okay to sell low to fix a broken portfolio, and I agree with him.

FinancialUproar says that Teaching is the Worst Job in the World. Great post.

{ 2 comments… read them below or add one }

PKamp3 October 15, 2011 at 10:56

Haha, love it. I don’t understand the Personal Finance Writer obsession with shirking debt completely. I especially don’t understand it when applied to companies, considering the tax advantages of debt financing (a similar argument for obsession with dividends – tax law is funny).


JT October 15, 2011 at 11:52

Me neither, dude.

I’ve actually written a few posts about capital structure, why I dislike dividends and then a post about how not paying off a mortgage is actually safer for your personal balance sheet.


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