Readicare Looks for 1987 Yearly Profit After Slide

Although Readicare Inc.’s stock has been a dismal performer over the last year--it closed Friday at $1.62 a share, a steep slide from its all-time high of $16.75 a share--at least one analyst remains decidedly bullish on the issue.

“I think the stock can get up to $5 a share within a couple of years,” said Steve Reid, of the Los Angeles investment house of Wedbush, Noble & Cooke, which also makes a market in Readicare stock.

Readicare racked up impressive growth at the expense of earnings, something which Reid says contributed to the stock’s lackluster performance. From one clinic in 1983, the company has grown to 25 facilities in Orange and San Diego counties, Northern California and Nevada.

But while Readicare reported a 13% revenue increase to $29.3 million during its fiscal year ended Feb. 28, its net loss totaled $1.2 million, up sharply from a net loss of $493,799 a year earlier.

First-Quarter Profit

Though Readicare has yet to turn a yearly profit--its biggest annual loss was in 1984, when it lost $1.8 million--it recently reported net earnings of $245,000 for its fiscal 1987 first quarter, ended May 31. The profit contrasts with a net loss of $285,470 a year earlier.

Despite Readicare’s relative youth, it has undergone more than one incarnation. The company used to call itself Urgent Care Centers of America Inc., and its original business consisted of running so-called “doc-in-the-box” walk-in clinics. Readicare has all but abandoned that line for industrial medicine and more recently has branched into drug screening and physical therapy.

Dennis Danko, Readicare’s president and chief executive, said he expects the company to post a net profit for its fiscal 1987. Wedbush Noble’s Reid predicts net earnings of $700,000 to $800,000 for the year. Adding that there has been some recent buying of Readicare by mutual funds, Reid currently is recommending Readicare stock as a potential triple play.

But Larry Selwitz, who follows medical stocks for Bateman Eichler, Hill Richards, is skeptical.

“The first thing I did when I got here was to pull that stock off the buy-list,” Selwitz said, stressing that while Readicare may be the biggest player in California, running medical clinics is a low-margin, highly competitive business.

In fact, said Selwitz, who himself managed a chain of clinics for a time, the business is little more than a Catch-22 because the more patients a clinic has, the more doctors it must hire. In turn, more patients must be seen to pay for the added doctors.

Additionally, it is fairly easy to get into the medical clinic business and price-cutting often occurs as a result. “There has never been anyone in that business who has demonstrated positive earnings on a quarter-to-quarter basis,” he said.

Investors looking to buy cheaply priced health care stocks, he said, should look for companies that are in more lucrative lines.