Buy Nobilis Health on weakness, says Mackie Research

The price decline in Nobilis Health (Nobilis Health Stock Quote, Chart, News: TSX:NHC) is unwarranted and represents a buying opportunity for investors, says Mackie Research Capital analyst Russell Stanley.

Last Friday, an anonymous blog post by a shorter on Seeking Alpha who goes by the name of “The Emperor Has No Clothes” sent shares of Nobilis down 28%. The post called the company “significantly overvalued” and said insiders have cashed out more than $70-million through a combination of share sales and compensation. The post also said turnover at the CFO level was a “red flag”.

On Sunday, the board of Nobilis issued a statement claiming that the blog post contained significant inaccuracies and misrepresentations. The company said there are no auditor or accounts receivable issues with the company’s Accuroscope branded procedures, that its recent debt financing was subject to rigorous due diligence, and that there were no issues surrounding its CFO role. The board pointed out that CEO Chris LLoyd has never sold a share of Nobilis.

“Nobilis’ Management has reviewed the inflammatory and slanderous anonymous blogger’s posting on the crowd funded tabloid Seeking Alpha and has prepared the following brief response to that posting’s most outrageous innuendo,” said the statement. “While the Company does not make a habit of responding to bloggers or commenters in other investors forums, least of all anonymous ones, it is making an exception in this case because of the clear harm done to the Company’s shareholders, which was the obvious intent of this blogger and those colluding with him or her to manipulate our Company’s stock price for their self-interested gain.”

Stanley says the entire situation has made the valuation of Nobilis “even more compelling”.

“NHC’s closest comparable trades at approximately 13x EV/EBITDA based on consensus F2016 estimates,” says Stanley. “Surgey Partners’ (SGRY-NASDAQ) recent IPO valued it at approximately 13x its pro forma 2014 EBITDA. AT just 4x our F2016 EBITDA forecast, NHC now trades at 1/3 of the multiple that its peers receive, though we believe NHC’s growth profile is much stronger.”

In a research update to clients Monday, Stanley maintained his “Buy” rating and one year target price of $12.50 on Nobilis Health, implying a return of 154% at the time of publication.

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