Baby care boosts growth at Pediatrix (PDX)

"If I had to pick the ideal business, it would be a business that is a leader in their industry, that continues to grow while generating a large amount of their earnings in cash," says Charles Mizrahi.

The noted value investor and editor of Hidden Values Alert explains, "When you find this type of company, all you need to do is buy it at the right price and let it work for you." Here's his latest -- Pediatrix (NYSE: PDX).

"When looking at our portfolios,we can easily identify a few wonderful businesses. To find the
businesses that generate cash, I look to free cash flow -- the net cash provided by the business’ operating activities minus capital spending, in other words the cash that hits the bottom line.

"When looking at free cash flow, I want to measure it relative to revenue. I then get a better read on how much cash the business is able to convert from each dollar of revenue.

"One such company, and our latest featured new recommendation, is Pediatrix (PDX) is a leading provider of physician services including newborn, maternal-fetal, pediatric subspecialty, and anesthesia care.

"Its national network is comprised of 1,072 affiliated physicians, including 788 physicians who provide neonatal clinical care in 32 states and Puerto Rico.

"The company provides clinical care to babies born prematurely or with complications within specific units at hospitals, primarily NICUs, through a team of experienced neonatal physician subspecialists (called neonatologists), neonatal nurse practitioners, and other pediatric clinicians.

"The company also provides inpatient and outpatient pediatric cardiology care of the fetus, infant, child, and adolescent patient with congenital heart defects and acquired heart disease and also cares for adults with congenital heart defects.

"Other subspecialty care includes pediatric intensivists, who are hospital-based pediatricians trained in caring for critically ill or injured children and adolescents, and pediatric hospitalists, who are hospital-based pediatricians specializing in management of acutely ill children.

"PDX generated $180 million in free cash flow. Free cash flow/revenue is 18.9%; for each dollar
in revenue, 18.9 cents fall to the bottom line. Net profit margin (NPM) continues to trend higher over the past five year. NPM is currently at 18.2%.

"The company does not have any long-term debt. And over the past five years that company has repurchased 5 million shares or 7% of shares outstanding. After completing a recent $100 million share repurchase program, on December 31, 2007 they approved an additional $100 million share repurchase program.

"Overall, PDX is a well-run business, and a price of $51 or less per share represents very good value. If PDX can grow earnings at only 12% per annum and maintain a P/E of 15, the stock will handsomely reward investors through the next five years."