Computer Programs and Systems: Patients and profits

Government funding is supporting growth in the health information technology sector.

By TheStockAdvisors Apr 3, 2013 2:23PM
 Dentist working on a computer copyright Andersen Ross, Brand X Pictures, Getty ImagesBy Ingrid Hendershot, Hendershot Investments

In 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA), which included $19 billion in funding over a 10-year period for health information technology. In addition, Medicare and Medicaid incentives encourage doctors, hospitals and other providers to adopt electronic health records.

Founded in 1979, Computer Programs and Systems (CPSI) is a leading provider of health care information solutions for community hospitals with over 650 client hospitals in 45 states and the District of Columbia.

ARRA, along with the increasing pressure to improve patient care, should have a positive impact on CPSI's business as community hospitals increase the adoption of information technology as a management tool.

CPSI's business model is highly profitable with the company generating an outstanding 52% return on shareholders' equity in 2012 as the company's profit margin expanded.

Over the last five years, the return on equity has averaged a superb 42% as sales have compounded at an 11% annual rate with net income growing at an 18% annual rate.

This small company has maintained a strong balance sheet over the years with no long- term debt and bountiful cash. Free cash flow increased 23% in 2012 to $27.8 million.

The company paid a $1.00 per share special dividend in 2012, approximating $11.1 million. Even after paying the special dividend, CPSI ended the year with nearly $20 million of cash, which represented 34% of shareholders' equity.

Management is committed to providing superior shareholder returns while retaining the financial capability to reinvest in the company’s long-term growth.

CPSI recently increased its 2013 dividend 11% to an annualized rate of $2.04 per share, with the dividend currently yielding a healthy 3.8%.

Management anticipates further dividend increases along with further growth in 2013 with total revenues expected in the range of $194-$206 million and EPS in the range of $2.80-$2.98.

The company's backlog as of year end was $149.3 million, consisting of $42.4 million in non-recurring system purchases and $106.9 million in recurring payments for support, business management services and software-as-a-service contracts.

A new subsidiary, TruBridge, was formed to provide additional services targeted specifically at rural and community healthcare organizations.

Long-term investors seeking a healthy dividend should consider CPSI, a HI-quality firm with highly profitable operations and a strong balance sheet. Buy.

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