This week, one of the members of our Inner Circle asked for my stock investing advice on a Canadian company in the medical field that recently converted from an income trust to a corporation. Here is my reply.
Q: Good morning Pat. I would like your advice on Medical Facilities Corp. They have recently made some changes and I would like to know if you think this is a good company to invest in for the long term. Thanks.
A: Medical Facilities Corp., symbol DR on Toronto (www.medicalfacilitiescorp.ca), owns majority interests in four specialty surgical hospitals located in South Dakota and Oklahoma, as well as an ambulatory surgery centre in California.
The specialty hospitals perform scheduled surgical, imaging and diagnostic procedures. Their revenue comes from fees they charge for the use of their facilities. The ambulatory surgery center specializes in outpatient surgical procedures. Patients typically stay in this facility for less than 24 hours.
In the three months ended June 30, 2011, Medical Facilities’ revenue rose 6.2%, to $54.3 million from $51.2 million (all figures except share price and market cap in U.S. dollars). Cash flow per share rose 6.3%, to $0.34 from $0.32.
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Stock investing advice: Medical Facilities faces stiff regulatory challenges
Medical Facilities will benefit from rising demand for its services as the U.S. population ages. Moreover, physicians who practice at its facilities retain a minority stake in the company; that adds some continuity to Medical Facilities’ operations. However, the company’s health-care facilities are subject to numerous and constantly changing legal, regulatory, professional and private licensing, certification and accreditation requirements. That adds an element of uncertainty to its operations.
The company converted from an income trust on June 1, 2011. It continues to pay a high dividend, and the shares yield 11.0%. However, it may need to cut that high dividend in the near future.
Pat gave his recommendation on Medical Facilities Corp. in this week’s Inner Circle Q&A. You can view it immediately when you become a member of this special investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.
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