Avondale Senior Analyst Kevin Campbell has again reiterated his case for more upside in medevac provider Air Methods Corporation (AIRM). Based in Englewood, Colorado, Air Methods is the leading national provider of air medical transort services. The company provides both transport-only services to hospitals and comprehensive air medical transport services to communities. With its fleet of 400 aircraft, AIRM serves more than 98,000 patients each year in 42 states.
Although Kevin’s earnings estimates are the highest on the street, he believes upside remains for a number of reasons including:
Better-than-Expected Utilization of Services through Community Health Systems. The preferred provider agreement between AIRM and Community Health Systems (CHS) was expected to capture 50% of all air transports from CHS facilities. Although still in its early phases, AIRM has captured approximately 90% of that volume, which Kevin’s model does not anticipate.
Conservative Pricing Assumptions. From 2004-2011, AIRM’s pricing has grown at an 11.4% CAGR. Kevin’s model assumes growth of 10.6% in 2012 and only 4.0% in 2013.
Healthcare Reform and the Improving Job Market. The difference in collections between a commercially insured patient and an uninsured one is approximately $17,000. Therefore, a 1% mix increase from self-pay to commercial insurance adds approximately $0.44 in EPS for Air Methods. An improving job market and/or healthcare reform, which is not anticipated in Kevin’s model, could drive significant earnings growth.
International Expansion. Air Methods has entered a competitive bid to provide air medical services in Eastern Europe. If the company wins the contract, the news could give the stock a considerable bump in 2012 and drive growth in 2013 and beyond. This too is not included in Kevin’s estimates.
Kevin and his team are standing by their Market Outperform rating for Air Methods Corporation, and the stock is still well below the target price.
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