HMS Holdings (HMSY): Great potential from possible new national health care plan

By J. Royden Ward , Analyst and Editor of Cabot Benjamin Graham Value Letter

From Cabot Wealth Advisory 10/29/09  Sign up for free Cabot Wealth Advisory e-newsletter

Lately, my computer is listing a lot of health care companies with very good potential. Several factors cause this phenomenon.??

First, companies in the health care sector tend to be recession-resistant because people still need health care regardless of economic problems. ??

Second, there’s a huge swell in the number of people reaching age 65. During the next 25 years, because of aging baby boomers, the over-65 population will increase by 80%, creating a dramatic rise in the demand for health care.??

Third, a lot of health care companies seem to be undervalued, which would cause them to appear on my list. The low stock prices could be misleading, though, because health care reform could impact some of the companies in a very negative way.??

One of the important objectives of health care reform is to increase the efficiency of the current system from top to bottom. Cutting costs and waste could save billions and reduce everyone’s health care costs considerably. My screening process has led me to a unique company that could play a big role in cutting health care costs.??

HMS Holdings (HMSY) provides cost-reducing services to healthcare providers, Pharmacy Benefit Managers (PBMs) and government sponsored health care programs, such as Medicaid and the Veterans Health Administration.  ??

HMS Holdings reduces costs for Medicaid by making sure claims are accurately paid, billing problems are minimized, and fraud has not occurred. According to reports, the Medicaid error rate of 10.5% costs $38 billion annually. Each year, HMS Holdings recovers more than $1 billion from fraudulent claims on behalf of government programs.??

For the first half of 2009, HMS’s revenues increased 25% and earnings per share soared 42% as a result of strong demand and new contracts. I forecast rapid 24% EPS growth during the next 12-month period and beyond.??

I foresee great potential from a possible new national health plan that will stress a more efficient system with less waste. The company is small, with just $200 million in sales, but the balance sheet is strong.  HMSY shares are high-priced at 32.3 times next 12-month EPS, but the potential is substantial.??

Editor’s Note: You can read more about HMS Holdings and get continuing coverage of all the best value stocks in Cabot Benjamin Graham Value Letter. There you’ll not only find buy and sell advice for HMSY, you’ll get many other excellent value stock recommendations each and every month. Roy applies the strategy of the father of value investing, Benjamin Graham, to find the market’s best undervalued stocks. And he will tell you exactly when to sell, too. This year he’s already recommended selling 10 stocks with average gains of more than 25%! Don’t miss out on his next recommendations…click here now to get started today! Cabot Benjamn Graham Value Letter

Roy Ward
J. Royden Ward

Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.