Emdeon Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of health-care "payment management solutions" provider Emdeon (NYSE: EM  ) plunged as much as 10% this morning on the back of a downgrade to "market perform" from analyst William Blair.

So what: News that Blackstone (NYSE: BX  ) was interested in buying Emdeon for $3 billion drove up Emdeon's stock 22% in intraday trading yesterday. And rightly so -- if the rumors are correct, we're talking about a purchase price more than twice as high as Emdeon's current market cap.

Now what: But here's the problem: Emdeon's not worth $3 billion. Not even close. I mean, at $1.4 billion in market cap, the stock already costs nearly 65 times what it earned last year. Even if you value the company on its free cash flow, the $94 million Emdeon generated in "cash profit" over the past year prices this stock at more than 14 times FCF today.

Now, a multiple of 14 might be a fair price if Emdeon achieves the 14%-plus growth targets that Wall Street has laid out for it. But 28 times free cash flow? Seems a bit rich to me, and it seems William Blair agrees. My advice: If Blackstone is crazy enough to offer $3 billion for your Emdeon shares, take the money and run.

What will come of Blackstone's buyout offer? Add Emdeon to your watchlist and find out.

Fool contributor Rich Smith does not own (or short) shares of either stock named above. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1527325, ~/Articles/ArticleHandler.aspx, 8/28/2014 9:07:02 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement