Time-Sensitive Trade: Emdeon’s IPO
Buy Emdeon’s initial public offering, Cramer said Monday. This company fits perfectly into the current debate on health-care cost containment.
Cramer predicted that we’re “at the beginning of an IPO landslide” in the US now that the markets are stabilizing. Private-equity firms have been waiting for just this moment to take their investments public. But investors shouldn’t buy them all. Instead, he suggested that they focus on the businesses that added value while they weren’t yet trading. That’s where Emdeon comes in.
Two private-equity firms, General Atlantic and Hellman & Friedman, own Emdeon. Since taking over in late 2006, the company has made a number of smart acquisitions and reduced its debt by one-third. A lot of times these companies are loaded with debt before they’re spun off, but that didn’t happen with Emdeon. Now investors have the opportunity to buy what Cramer called “the ideal health-care stock for the ideal time.”
So what exactly does Emdeon do? It’s a health-care information-technology company, Cramer said, and “the top electronic medical billing system in the country.” Emdeon has its hands in everything from e-payments to e-prescriptions to data and analytics. Whether it’s a doctor checking a patient’s eligibility, a doctor billing an insurance company, that insurance company sending payment to the doctor or the insurance company sending information to a patient, Emdeon handles all of it.
Cramer likes Emdeon over Allscripts-Misys Healthcare Solutions and Cerner for this very reason. The latter two touch on just parts of the health-care revenue cycle, while Emdeon profits from the entire thing. And there’s growth potential here: While 80% of bills from doctors or hospitals are sent electronically to insurance companies, only 10% to 15% of bills sent from insurance companies to doctors or hospitals are done electronically.
Then there’s the Obama factor. The president is pushing hard for cost containment and increased coverage, and that will offer a big boost to Emdeon because it is “the cost-control player,” Cramer said. Anything that increases electronic prescribing, record management, demand for cost-comparison data and claims also increases profits for this company.
Emdeon plans to sell 21.5 million shares at between $13.50 and $15.50. Cramer recommended that investors not pay more than $17.50 for the stock, which will trade under the symbol EM. He also cautioned against chasing Emdeon in the aftermarket. If you can’t get in on the IPO, take a pass.
“The opportunity here is to catch this one at too low a price as it comes public,” Cramer said, “not to pay up enormously once it starts trading.”
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