Boring Portfolio Boring Buys OXHP
May 24, 1996

800 Connecticut Ave
Norwalk, CT 06854

Phone: 203-852-1442
Fax: 203-851-2464

Closing Price, May 23, 1996: $47
Trade: Buy 100 shares


Oxford Health Plans is a managed-care company providing health-benefit plans in the northeastern U.S. Its products include point-of-service (POS) managed-care plans, health-maintenance organizations (HMOs), third-party administration of employee-benefit plans, Medicare and Medicaid plans, and dental plans. Oxford markets its health plans to employers in NY, NJ, PA, CT and NH through its direct sales force and through independent insurance agents and brokers.

The company was founded in NJ in 1984 by Chairman and CEO Stephen Wiggins. Wiggins had previously founded a Minneapolis nonprofit organization to operate long-term care facilities for disabled people and had developed four retirement communities. Oxford entered the NY market after state regulations allowed the operation of for-profit HMOs in 1986. The company became profitable in 1990 and went public in 1991. It entered the Medicaid and Medicare markets in 1992.

Total enrollment in Oxford's various plans approximately doubled in 1995, with a 114% gain in its POS product, Freedom Plan. POS plans are popular because they offer patients a choice of staying within an HMO plan or going to an outside healthcare provider with the plan picking up a share of the cost.

In addition to rapid internal growth, Oxford is also expanding through acquisitions. In 1993 it bought SmokEnders, a company that helps people quit smoking. In July 1995, one of its subsidiaries merged with OakTree Health Plan, a Philadelphia HMO.

Oxford is distinguished by its attention to high quality service and customer satisfaction. Independent surveys of managed-care customers routinely place Oxford at or near the very top. Not coincidentally, revenues for the company have more than doubled annually since 1992.

The company's snapshot is not without a blemish or two, however. Aggressive competition in the healthcare industry, along with increases in Oxford's lower-margin Medicare and Medicaid customers, have trimmed the company's net profit margins over the past few years, down to 3.0% in 1995. Even so, per-share earnings have grown at a CAGR of 91% over the past 5 years, according to First Call.

Another caution is that although the company is debt-free, cash-flow was slightly negative in 1995. Expectations are that cash-flow will turn positive this year.

On May 7, 1996, the company reported that 1Q:96 net earnings rose 79% over the year-ago quarter, to $18.5 million. Total revenues for the quarter reached $658.1 million, a 97% increase. Fully diluted EPS of $.25 compared with $.14 in the prior year's first quarter. Oxford's enrollment totaled 1.2 million members as of March 31, 1996, an increase of over 190,000 during 1Q:96 and almost 80% higher than the membership at the end of last year's first quarter. As of May 1, membership had grown to 1,280,000, with over 806,000 enrolled in the POS Freedom Plan.

Oxford's medical-loss ratio for 1Q:96 was 79.9% compared to 77.5% for the full year 1995. The increase is primarily attributable to higher costs in the company's Medicare programs, greater than expected pharmacy costs and increased enrollment in the company's Medicaid programs. On the other hand, administrative expenses were reduced to 16.4% of operating revenue for 1Q:96, compared with 19.0% for 1Q:95 and 18.7% for the full year of 1995.

Corporate Performance 1995  1994  1993  1992  1991
Revenues ($Mil)      1765.4 760.3 313.7 155.7  94.8
Net Profit ($Mil)      52.4  28.2  12.3  10.5   4.7
EPS                     0.36  0.20  0.09  0.09  0.05
Net Profit Margin (%)   3.0   3.7   3.9   6.7   5.0

Quarterly Results  1Q1996  4Q1995  3Q1995  2Q1995
EPS                0.25     0.11   0.11    0.08
Quarterly Results  1Q1995  4Q1994  3Q1994  2Q1994
EPS                0.14     0.07    0.06    0.05


As of May 6, 1996, there were approximately 75 million shares of OXHP outstanding, which reflects a 2-for-1 stock split on April 1 and a secondary offering of 5.23 million shares on April 9. This puts the company's market capitalization at approximately $3.52 billion. Insiders own approximately 14% of the shares. The stock "float" is approximately 64 million shares.

At a current price of around $47, OXHP is a bit off its recent high of $55 (partially a result of the recent secondary offering), but more than double its 52-week low of $22 1/4. The stock trades at less than twice trailing sales. Return on equity stands at a healthy 30% according to Investor's Business Daily.

As of May 20, First Call reported the consensus of the 23 analysts who follow OXHP was that the company would make $1.17 for 1996, a cool 65% increase over the preceding year. Current estimates for FY97 range from $1.43 to $2.00, with an average $1.64 -- i.e., a 40% gain over the FY96 projection. Analysts expect Oxford to grow EPS at a 40% compounded annual rate for the next five years, as well. That compares with a healthcare industry average projected growth of 16%.

Analysts' overall rating of OXHP stands at a 1.5 (between "strong buy" and "buy"). That rating has become progressively more bullish over the past few months (it stood at 1.8 three months ago), as have analysts' expectations for earnings growth. IBD rates OXHP as 99 for EPS growth and 82 for Relative Strength.


Oxford Health Plans is a terrific company. It is widely regarded as the quality leader, and its growth has been nothing short of breath-taking. If that weren't enough, the stock is a good value: at $47, OXHP trades at 40-times its projected 1996 EPS -- i.e., exactly equal to its estimated long-term EPS growth rate and well below its expected growth for 1996 versus 1995.

Fairly-priced 40% growers are always welcome in my portfolio. Why folks bother with hyped-up penny stocks when there are opportunities like OXHP around is beyond me.

Given its performance record, OXHP has attracted plenty of attention. This has made the stock fairly volatile, with the share price fluctuating approximately 65% more than the overall market on average. Boring investors will ride the waves serenely, focusing on the overall strongly upward trend rather than the daily ups and downs.

-- Greg Markus (MF Boring)