INVESTMENT REPORT

4/03/2012

IPC – THE HOSPITALIST COMPANY INC.
NASDAQ: IPCM OUR SCORE:

3.2

52 week price range : $30.61 to $.52.25 Market Capitalization: $0.61 billion Industry: Medical Services Business Address: 4605, Lankershim Blvd, Suite 617. North Hollywood CA 91602. Web: http://www.hospitalist.com Chairman/CEO: Adam Singer, MD Company Profile: IPC The Hospitalist Company, Inc. (IPC) is a provider of hospitalist services in the United States. Hospitalist medicine is organized around inpatient care, primarily delivered in hospitals, and is focused on providing, managing and coordinating the care of hospitalized patients. As of December 31, 2011, the Company's 1,201 affiliated hospitalists, including physicians, nurse practitioners and physician assistants provided hospitalist solutions at over 365 hospitals and 550 other inpatient and post-acute care facilities in 25 states. In December 2011, the Company acquired Hospitalist Specialists, PLLC and PCA Hospitalists, Inc. In March 2012, the Company acquired the facility-based practice of Asana Integrated Medical Group, a Professional Medical Corporation (AIMG), in both Southern California and Phoenix, Arizona. In March 2012, the Company acquired Inpatient Clinical Solutions, Inc. IPC also offers administrative and professional services, including information management system, transition management, regional management, recruiting, training, financial reporting, billing and collection, risk management, and compliance services to affiliated hospitalists. The company serves patients, primary care physicians, specialists, acute care hospitals, alternative sites of inpatient care, and health plans. IPC The Hospitalist Company, Inc., formerly known as InPatient Consultants Management, Inc., was founded in 1995 and is headquartered in North Hollywood, California. Financial Strength: Return on Investment Capital (Score: 4) IPC Hospitalist Group shows promise with respect to ROIC. Although in 2007, the ROIC was -0.5%, in 2008-2011, this has been 7.35%, 9.84%, 15.00% 11.99%, 13.76% respectively. The cumulative 5 yr ROIC was 8.5%, 3 yr 11.87% and 1 yr ROIC 10.00% of 14%. While these numbers are quite impressive, IPCM lacks the record of 5.00% consistency since the ROIC growth appears to happen only in the last 3 years. We suspect that 0.00% this trend will continue in the next years, but 1 2 3 4 5 6 7
-5.00%

64) to 2008 when the EPS was 0. giving a cumulative 5 yr Equity growth rate of -13%. giving a EPS growth rate of 31%.74. the equity is accumulating. With IPCM divesting most of 500 450 400 350 300 250 200 150 100 50 0 1 2 3 4 5 6 7 1000% 500% 0% -500% 1 2 3 4 5 . These are quite impressive statistics. 2 1. but again IPCM lacks predictability since positive data runs only for 3 years. Overall 3 yr EPS growth rate is at 24% and 1 year rate is at 19%. In the first year of available public records.8 million to $457. 19% and 21% since 2009. this portends a great future. the EPS growth rates are still comfortably high as to not be of great concern. we are not that concerned. The 5 year Sales growth rate averages at 25%. but as of 2011. The BVPS growth rate has been 17%. Since then. greater acquisition of equity over time. Free Cash Flow (Score: 1) Free Cash Flow growth with IPCM has been disappointing. obviously.46 to 1. Sales Growth (Score: 5) Sales growth has been the one consistent metric with IPCM since 2005. a 3 yr rate of 20% and a 1 yr rate of 21%. EPS values have risen steadily from 1. Given that it is the lowest priority of values. Equity Growth (Score: 3) Equity Growth as determined by the Book value per share has also been in consistent. certainly a positive sign. There was a reduction in equity associated between 2005-2008 (0%.INVESTMENT REPORT for the time being the company is not worth investing since it lacks predictability. Given that equity growth closely mirrors future EPS prospects. 28% and 19% in the last 3 years. This has been set against. the year to year growth rate ranges from 17% (2010) to 34% (2006).5 1 0. the 3 yr at 21% and the 1 yr rate at 26%.5 -1 1 2 3 4 5 6 7 30 25 20 15 10 5 0 1 2 3 4 4/03/2012 5 6 7 EPS Growth (Score: 3) EPS growth accelerates since 2007 (when it was -0.47 million by 2011 a quadrupling of income.14. -70%). -11%.5 0 -0. Sales growth has been quite impressive. IPCM catapulted from a revenue of $110. Despite there is a decline in the EPS growth rate yearto-year. 1.87.

2010 at 27% and 2011 at -10%. Dr.04. Given that the share price as of 4/3/2011 is at $37. the Future price/share is approximately $194.74 (for FY 2011). Dr. making his total compensation on the range of $2.20. Valuation With current EPS at 1.6-20%.25M).20 price/share in today’s market. Estimated Future P/E is likely to be 27. The Free cash flow has consistently been negative in the last four years. this places our EPS growth estimate at 19%. Extrapolating for a 15% rate of return annually. Singer studied BS in Biology from the University of California. this would be approximately $48.2 . With a future P/E estimated at 27. Inc. he acquired a private practice in pulmonary medicine that shortly thereafter merged with two other pulmonary physicians to become part of Consultants for Lung Disease.5% 5% 2. Given a minimum acceptable return of 15% compounded annually.5% 15% 30% Sector ROIC Equity Growth EPS Growth Sales Growth Cash Growth Management Margin of Safety Total Investment Score : 3. with 2009 being 60%. His cash compensation is $543k. Inc. Singer has been a Director of IPC The Hospitalist Company since 1995. whereas the historical 5 year EPS growth rate was about 24%. In 1991. Dr. Los Angeles in 1982 and his medical degree from the Chicago Medical School at Rosalind Franklin University. analysts estimate a future 5 year EPS growth rate of approximately 19.INVESTMENT REPORT 4/03/2012 its earning towards the acquisition of more equity (capturing practice groups and hospitals) it is understandable that the free cash flow is suffering. This gives a 5 year free cash flow rate of 87% (unrealistic) to a 1 yr cash flow growth rate of -10% (disappointing). Dr. it was 571%. Management (Score: 4) The company is led by physician Adam Singer.38M yearly. Conservatively speaking. Singer has been the Chief Medical Officer of IPC The Hospitalist Company since 2006 and also served as its President. this places the Margin of Safety for our estimation at only 22% which below our recommended margin of safety of 50%. Score 4 4 3 3 5 1 4 2 % Weight 10% 15% 15% 7. (now the Institute for Better Breathing).7 (the average of the last 5 years P/E) and less than the expected P/E by analyst estimates (2x Future EPS growth rate). MD. he co-founded IPC The Hospitalist Company. in 1995 and has been its Chairman and Chief Executive Officer since 1995.7. and owns a considerable amount of stock of the company (valued at $5. Dr Singer clearly has a firm understanding of the company and the need for hospitalists in the United States. He performed a post-doctoral internship and residency in internal medicine and a fellowship in pulmonary medicine at University of Southern California. In 1998. this places the future EPS in 10 years at $7.99 (split adjusted). Singer received the Up and Comer award from Modern Healthcare. In 2008.