We are in the process of posting all of our Capitalize 4 Kids notes but because Envision Healthcare is crashing now on earnings “review of strategic alternatives”, and hits from recent storms in Florida, we thought we start with that one – no troll! Smith pitched the long case for the stock only a few days ago at the conference. Below are our notes which are not a verbatim transcript.
Stay tuned for more C4Ks and more investment conferences in coming days.
Jeff Smith Starboard Value
Activist Strategy. Undervalue with a plan to unlock that value
Private, Physical and ambulatory services.
Starboard Value Strategy: Proven and Repeatable Approach
1. Plan to unlock values, Potential Seed investment, Clear path, Undervalued on absolute values basis, Lead Activist position, proposed value trap.
Overview of Company
Envision Healthcare is a leading provider of physician-led outsources medical services and ambulatory surgery centers. 83% physician services ($6.3B net sales) and 17% ambulatory ($1.3B net sales) surgery centers.
Envision Healthcare was created through the Merger of Legacy Envision and AmSurge.
Legacy Envision was of worth $5.4B and AmSurg of amount $2.6B, so these merged to form Envision Healthcare. This merger resulted into the market leader in outsourced physician services.
Despite being a transformational merger, the stock price has declined by -40%, virtually erasing the market value of AmSung.
Envision Healthcare has significantly underperformed both the market and the sector. Envision is one of the largest owner and operators of ambulatory surgery centers in the U.S. The ASC business has shown steady growth and consistent margin improvement. The ASC has 263 ambulatory surgery Centers Nationwide. AmSurge thinks that Surgery centers are well positioned as volumes have been benefited focus on reducing costs and moving care to the most appropriate low-cost setting.
Ambulance surgery centers reduce the cost of outpatient’s surgery nationwide by more than $38B annually. The ASC has strong secular tailwinds as more hospital surgeries move to the outpatients setting and more outpatients procedures move to ASCs. ASC has continued to grow over time as have Medicare payment to ASCs.
Physician Services Overview
Envision is a national provider of multi-specialty physician services to the hospital (hospital outsourcing physical practices. Envision is the market leader in outsources physician services.
59% is the emergency department. Physician services include emergency department hospitalist, Anesthesiology, Children’s facilities, Radiology, Post-Acute and surgery centers.
Envision Scale and comprehensive suite of services provide a compelling value proposition to its customers.
good cash flow and EBITDA growth with room for improvement
Opportunity for cross-selling
Good acquisition target by private equity or strategics