Jeffries Reiterates Hold Rating on CardioNet (BEAT)

Jefferies and Company is out with a research report this morning, where its analysts reiterated their Hold rating on shares of CardioNet BEAT; they have an $8.00 price target on the stock. The Jefferies analysts said, “Concerns regarding continued future reimbursement declines remain an overhang for CardioNet, due to the threat of stunted revenue growth and higher hurdles to profitability. However, to date, commercial payer reductions in reimbursement have not been as deep as we once expected, but potential cuts could be on the horizon.” They added, “As relayed in the CY10 Physician Fee Schedule final rule, CMS continues to have issues developing acceptable PE RVUs for 24/7 services (including MCOT) because the PE equipment methodology was developed for equipment that is in use during standard office hours and not 24/7. CMS conducted further analysis for the CY11 proposed schedule and decided to keep contractor pricing for MCOT after declining to make a NPD.” They continued, “Although the decision by CMS is not overly surprising, the details in the proposal were concerning, due to the fact that multiple analyses concluded that, if CMS had made a national pricing determination, the final reimbursement proposal would have been below Highmark's current rate of $754. We had low expectations for CMS to make a positive national pricing determination for 2011, which would increase the Medicare rate. We felt that the most probable outcome would be either a flat national pricing determination or a flat local carrier rate.” The Jefferies analysts closed by saying, “Our $8 PT is generated by applying a 1.6x multiple to our 2011 revenue estimate of $140MM and discounting it back 10% due to the risk of further reimbursement pressure. For risks, CardioNet could be acquired at a higher valuation.”