“MModal, Inc. (MODL) is the largest provider of clinical documentation solutions based on the physician narrative in the United States. The company offers fully integrated services that capture and convert a physician’s narrative into a high quality customized electronic record. ... They can boast 200,000 physicians and nearly 4,000 hospitals and physician practice locations as clients. Because it’s the second largest company in the industry, MModal enjoys perks like economies of scale, contracts with the largest hospitals and a larger research and development budget. MModal is also able to provide higher-quality service and retain their existing clients — recurring revenue is 98% of total sales.
High retention resulted in huge growth
“MModal has a 97% retention rate for new business. And those customers stay for a long time. The average tenure of a customer is over five years, which means that MModal stands to earn a ton of recurring revenue per client. The high retention rate has resulted in supreme sales growth. MModal boosted its total sales from $35 million in 2006 to $443 million in 2011. While the long-term growth is staggering, MModal recorded near-term financial success as well. Revenues expanded 6% from $417 million in 2010 to $443 million last year. However, net income ballooned 278% to $64.9 million from $17.2 million in 2010 — somewhat because of a favorable income tax provision. Even without that provision, EBITDA grew 37% to $118.1 million.
“All three analysts that follow the stock do so with a BUY rating. The analysts expect MModal to earn $1.32 EPS this year and increase EPS by 6.8% to $1.41 in 2013 on revenues of $517 million. The stock trades at 9.5 times current EPS and 9 times forward EPS. But given the strong sector, and the growth prospects of MModal, both of those multiples are low. Also, its direct competitor Nuance Communications (NUAN) trades at 12 times its 2012 EPS.
“MModal is not a significantly different business from Nuance — both are also excellent companies. However, MModal is 25% cheaper than Nuance’s value and perhaps nearly 50% away from its fundamental fair value. The shares have yet to realize their true value, but that won’t last long. MODL has already rebounded 113% from its $6.21 low in October and I expect it will climb to $19.50 within the next year.”
- Ian Wyatt, Top Stock Insights, June 15, 2012
Editor’s Note: MModal, Inc. (MODL) was formerly known as MedQuist Holdings and traded under the symbol MEDH until January 25, 2012.