CorVel's Clemons Quietly Shines

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V. Gordon Clemons Jr. isn't a typical corporate bigwig. A self-described "radical right-winger from Idaho," he runs a small, little-known company that only one analyst bothers to cover. Yet he may be one of the country's savviest chief executives.

His company, CorVel(CRVL Quote), a provider of medical cost-containment services, has seen its shares soar more than 1,000% since it went public in 1991. It has posted consistent annual earnings growth of 15% or higher, and a 25% return on equity. Now the company is making a major push onto the Internet.

How has Clemons made a go of it? There are four key ways: by keeping a clean balance sheet, by setting up a decentralized workforce (only 12 of his 3,250 employees work at the company's headquarters), by investing in technology to address a changing landscape and, perhaps most important, by exploiting a growing niche. "There's no substitute for being in the right business," he says.

The company faces competition from Cigna's(CIG Quote) IntraCorp, First Health(FHCC Quote) and closely held Concentra. But rising health care costs have sent companies scrambling for ways to keep expenses in line, so there's room for growth in the industry.

"The health-benefits sector is a nice growth area," says Marc Postiglione, the Bear Stearns analyst who covers CorVel's stock.

Postiglione rates CorVel, at $32.88 a share, a "hold" on concerns that the stock is too highly valued. But Clemons, who notes that the company is buying back stock, begs to differ: "I don't think paying [a price-to-earnings multiple] of 20 or so is overpaying, but we don't try to sell people on that point."

Born to Lead

Clemons attributes his success with CorVel in part to the lessons he learned growing up in Idaho. His father was a hardworking farmer as well as "a bit of a madman inventor," he says, while his mother was a family friend of the Albertsons, who built the supermarket business in Boise.

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CorVel's V. Gordon Clemons, Jr. Age: 58 Tenure: Founded the company in 1988, took it public in 1991.

After getting an MBA from the University of Oregon, Clemons worked for Ford and then for FMC. However, "they eventually fired me for being such a jerk," Clemons says. He didn't want to raise prices at the chemical division he was running, and so he got ousted, he says. "I've always been stubborn about not compromising what you believe in, and that's why I'm running my own company," he adds.

Clemons also worked at Cigna's IntraCorp, and was president of Caremark when Baxter International acquired the company in 1987. "I was the only guy who voted against the deal. When Baxter brought me in, they showed me a management chart and I wasn't on it. I figured it was time to move on," he says.

Clemons founded Fortis in 1988 with funding from holding company North Star Universal. Fortis went public in 1991, changing its name to CorVel in 1992. The company initially targeted workers' compensation case management, but expanded into other areas.

CorVel, headquartered in Irvine, Calif., now offers more than 1,500 customers a range of services, from vocational rehabilitation and medical-billing reviews to insurance. In its fiscal year ended March 2002, CorVel posted revenue of $235 million and net income of $1.30 a share -- up 13% and 15%, respectively. For the first half of this fiscal year, earnings rose 16% to 73 cents a share, and revenue climbed 17% to $135.7 million. Clemons doesn't offer earnings forecasts, but analyst Postiglione sees per-share earnings of $1.50 in 2003 and $1.73 in 2004.

CorVel's books are debt-free, in part because it hasn't had to buy its growth through acquisitions. The company also generates lots of cash -- which represents 7% of its assets -- to fund its operations and organic growth initiatives.

"This is a company that has done a lot of little things right, and one of the biggest is consistently investing in new technologies and looking for ways to build out services," Postiglione says.

The Next Step

One-fourth of all health care costs go to administration, and that has been a boon for CorVel. But Clemons says administrative costs will continue to drop as technology and automated services improve. "Our prices have been under pressure for the past 15 years," he said. So the CEO has positioned CorVel to benefit from a surge in transactions to offset a drop in margins. A linchpin of that strategy -- and a big component of the company's technology spending -- has been the Internet.

The centerpiece of the company's Internet strategy is CareMC.com, its three-year-old claims-management Web site. "CareMC has been a big success, helping to drive revenue to other areas of CorVel," Postiglione says.

CorVel sees the site becoming a portal for health care management services -- offering the services of CorVel as well as its competitors. "The nice thing about the Internet strategy is it takes what we already do to the next level -- giving the adjuster the ability to approve bills; bills getting paid online," Clemons says.

Clemons envisions some bumps in the next few years in making his Web dreams into reality, but he says the company has the infrastructure to make it work. "We try not to hype that and keep it out of the stock, but behind closed doors we're very excited about it," he says.

These may sound like pie-in-the-sky Web plans, but analyst Postiglione, who concedes that CorVel has proved him wrong time and again in its ability to post sharp growth, said, "Gordon is very conservative. He tends to not bet the ranch on things."