Invacare Corporation (IVC), the largest home health care supplier in the industry, has the potential to boost its earnings power from $1.60 to $2.50 a share after working through a near-term FDA issue, says Arnold Ursaner, President of CJS Securities, Inc.
“We try to identify companies where a short-term event can distort the long-term outlook on a company, particularly if we think that that may change in the near term,” Ursaner said. “Invacare is the largest home health care hardware or durable goods supplier in the industry. It’s four times larger than its next competitor. Several years ago, the company had an FDA issue with one of its plants that has distorted the financials for the last year. We are approaching a point where they will submit the Phase III plan with the FDA in November to hopefully resolve this issue, with a conclusion sometime in 2014.”
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Due to the FDA event, Invacare has not screened well with analysts, Ursaner says. However, he believes the FDA issue is fixable problem that will open up an opportunity, and IVC has the potential to see its earnings power move above $2.50 a share over the next few years.
“At this point in time the base earnings power of Invacare is $1.60, and over the next two to three years we think earnings power above $2.50 a share is possible. Even applying a modest multiple to the $2.50 in earnings would lead to a doubling in the stock over the next 18 to 24 months. Because of this issue, IVC doesn’t screen well, and most of the analysts have given up on the company. That’s exactly what we try to do at our firm, find those opportunities where an identifiable problem can be fixed and restore the company to its position within the market,” Ursaner said.
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