Recession resistant: U.S. Physical Therapy (USPH)


Okay, not recession proof but USPH is a recession resistant health care service provider. USPH has an outstanding financial position with 35 million of an unused credit line, consistent stable free cash flow, and a proven management team that will enable it to continue expanding market share by exploiting the current lower multiples on overlooked smaller accretive competitors. U.S. Physical Therapy, Inc operates 349 outpatient physical and/or occupational therapy clinics in 42 states representing about 7% of this highly fragmented industry. From a macro point of view the long term economics of physical/occupational therapy can only improve with aging baby boomers and a country in less than perfect physical health.

The consistently high ROE currently at 14.10% screams out well managed company and the high earnings yield of 17.50% (EBITDA/EV) is proof of a bargain stock price. A sound capital structure is also contributing to the high and consistent ROE. Shares outstanding are basically flat over the past 4years at 11.96 million shares and proof of a shareholder friendly management. The recent quarter reported significant top and bottom line improvements. Comparative third quarter 2008 results versus Q3 2007 improved with revenues +26% to 47.20 million, net income +19%, same store revenues + 3.40%, same store visits +2.80% offset with a .01 EPS negative impact from Hurricane Ike.

Additional indications of value

Proven value institutions holding USPH; % of TSO (total shares outstanding) with Royce & Associates 12.71%, FMR LLC 4.48%,O’Shaughnessy Asset Management 4.71%, shares acquired at higher than current prices.

Key insider buys with CFO purchasing 2000 shares on the open market (11/10/08) for $13.60 and 1000 for $9.61 on 11/21/08.

EBITDA/EV =2.50/14.28 = 17.50%
CFFO/EV = 2.29/14.28 = 16.03%
CFFO/MC =2.29/12.38 =18.49%
EV/NI = 14.28/.857 =16.66%
FCF/EV = 1.93/14.28 = 13.51%
FCF/MC = 1.93/12.38 =15.58 %
CFFO/NI = 2.29/.857 = 2.67%

The above indicates the high quality of earnings yieldROA TTM = 14.31 ;ROA 4 yr average = 11.25

Consistent productive use of assets as measured by ROAUSPH ranks near the top for this measure in the specialized health care industry

Share count average past 4 years = 11.60 millionShare count TTM = 11.96 million
No dilution indicating a priority for shareholder value

P/S (Price/Sales) average over the past 4 years = 1.28
P/S TTM = .76
P/B (Price/Book) average over the past 4 years = 3
P/B TTM = 1.87

Both price to sales and price to book are selling at historical discounts

Per share data

Current Price $12.38
EV = $14.28
52 low = $9.00
52 high = $21.00
CFFO = $2.29
FCF = $.1.93
EBITDA = $2.50
NI = $.857
Cash = $.765
A/R = $2.33

To summarize, as I stated above U.S. Physical Therapy is well managed and selling at a discount. I believe this opinion is further supported by significant ownership held by proven value institutions, recent key insider open market buys, quality of reported earnings indicated by the strong free cash flow, low capital requirements to run and grow the business , potential customer demographics growing , an economic moat evidenced by a high and consistent ROE, high earnings yield supported by ample free cash flow, discounted valuations based on P/S and P/B compared to historical measures, A+ balance sheet , selling significantly off historical highs ,very few shares sold short and double digit growth.


Long lasting deep recession
Reduced insurance coverage driven by companies implementing cost savings
Government changes in covered health care procedures

DisclosureI own shares of USPH


Physical Therapy Denver said...

Being a Physical Therapist myself, I would agree that despite the harsh economic times, my professional has been little effected.

I do agree the risk is the chance of declining reimbursements.

ShadowStock said...

Thanks for the comments.

In my opnion at the current price the stock could be accumlated on weakness as part of a diversified portfolio. Good Luck

Anonymous said...

This one is worthy of study. What does ROAUSPH mean? Can't find that on the web except this site. -W

ShadowStock said...

ROAUSPH sounds like a typo.

But it could be ROA (return on assets) USPH(stock symbol)