American Health Services, Money-Loser for Years, May Get Robust, Analysts Say
American Health Services, a Newport Beach company that operates medical facilities equipped with magnetic resonance devices and other high-tech imaging gear, has yet to be profitable in its 5-year history. But at least two analysts think that the company is about to turn the corner and realize the kind of profits that others in the field are making.
“The medical-imaging sector is an exciting area. Some companies’ stocks have doubled and tripled in the last year,” Larry Selwitz, a securities analyst with Newport Beach investment bank Cruttenden & Co., said. “This particular company is not that well known.”
Selwitz has looked at about 25 companies in the field across the country. The sector, he said, has been a hot performer in a lackluster year of stock investments.
Among the winners he cited was American Shared Hospital Services, a San Francisco company that provides mobile-imaging services to hospitals. Its stock price soared from about $1 a share in early 1987 to $11 earlier this year before settling down to its current trading range of $7.50 to $8. Other winners were MMI Medical Inc., a Pomona imaging company that jumped from $3 a share to $9 over the course of this year, and Acuson Corp., a San Francisco ultrasonic equipment maker, that shot from $11 to $21 a share since the beginning of this year.
But American Health Services has yet to enjoy the popularity of the industry as a whole, mainly because it is just emerging from the development stage and because few investors or analysts have taken a close look at the company, Selwitz said.
He recently issued a favorable report on the company and believes that AHS is a good buy at its current price despite the fact that it has failed to achieve a solid earnings record.
Byam Stevens, an analyst with H.G. Wellington in New York, also issued an upbeat report on the company last summer.
One factor boding well for the industry as a whole is a move within the medical community to control costs by providing outpatient services.
AHS owns and operates the facilities as joint ventures with hospitals. The facilities are always located on hospital grounds.
“We try to have our centers take on the identity of the hospital. You never see our name,” said Clarke Underwood, American Health Services’ chief financial officer.
In the Southern California area, AHS currently operates imaging centers at USC and UCLA hospitals.
Another plus for the industry is that there have been major technological strides in the field, with more promised. Computerized axial tomographic scanners (CAT scanners), ultra sound, and magnetic-resonance imaging provide a detailed, non-invasive look at everything from brain tissue to clogged arteries to the interior of bones.
American Health Services was in the news recently when it announced an $18-million acquisition of American Diagnostics Group, a Tampa, Fla., company with 13 imaging centers.
The acquisition promises to make AHS one of the biggest operators of fixed-site diagnostic centers in the country, according to Underwood.
AHS now operates nine centers, and should have a dozen in service by the end of the year, not including the new centers added in the acquisition.
The imaging centers have begun to make money this year after amassing hefty losses in their start-up phases, Selwitz said. The centers lost $400,000 in 1986 and $600,000 in 1987.
In total, the company lost $5 million in 1987.
For 1988, the company lost money in its first two quarters, is expected to report a loss in the third, but should break even or make money in the fourth, according to Selwitz.
He expects the company to lose about $1.7 million in 1988 and to go on to post a profit of about $3.4 million in 1989.
In addition to the imaging centers, AHS operates the profitable Stop Smoking Clinics. The clinics add $1.5 million in sales a year, but are more than offset by a $2.5-million experimental research program to treat nicotine and drug addiction with electrical stimulation to the brain.
Underwood said AHS will apply for Federal Drug Administration approval in June, 1989, for the program.
According to Selwitz, the company may be better served by selling off the experimental treatment program. He estimated that AHS could make from $5 million to $7 million in 1989 if it eliminated its R&D; expenses.
Underwood said the company has no plans to sell the program.
The company’s stock, which closed on Friday at $3.875, up 25 cents for the day, traded on exceptionally heavy volume Thursday and Friday. On Friday, 152,900 shares changed hands, while on Thursday 63,600 shares were traded. Normal trading volume is about 5,000 to 10,000 shares a day, Underwood said.
Analysts said the increased volume may be in anticipation of the company’s third-quarter earnings report, which is due out soon.
The stock has traded between $3 and $4 a share all year.
