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Matria Mangled Again

Matria (MATR - Get Report) knows how to test its investors.

Shares in the disease management company sank 7% Friday after the company issued financial guidance that relies on a huge ramp-up in sales as the year wears on. Matria laid out its ambitious plans even as it broke its lofty promises for the current year.

To be fair, Matria nearly doubled its sales in 2006 to $336 million, with help from a big acquisition. But the company still fell short of hitting the low end of management's previous guidance range.

Results for the fourth quarter -- while clearly better than those posted in earlier periods -- came up shy in the end. Revenue for the quarter totaled $88.4 million instead of the $89.6 million Wall Street had anticipated. Profits of $5.7 million, or 26 cents a share, came in a penny light as well.

The "top line falls short on all accounts," noted BB&T Capital Markets analyst K. Newton Juhng. Meanwhile, "the company reaffirmed its (2007) revenue guidance ... which is heavily skewed toward the back half of 2007."

Matria foresees a slowdown in the meantime. The company expects to generate sales of just $85 million to $86 million -- and profits of just 18 cents to 21 cents a share -- in the first quarter of this year. Analysts, on average, were looking for sales of $89.6 million and profits of 24 cents a share during the first quarter instead.

From there, however, Matria fully expects business to explode. In the fourth quarter, in fact, the company sees itself delivering revenue of up to $106 million and realizing 40% of the profits that it anticipates for the entire year.

All told, Matria projects revenue of $370 million to $380 million and profits of $1.18 to $1.29 a share for the current year. Prior to this week's update, analysts had been assuming that Matria could hit the midpoint of those ranges -- although, undoubtedly, they had little idea that the company would need such a spectacular fourth quarter in order to do so.

For its part, Matria sounds dependably optimistic. The company offered several reasons why its sales should dramatically expand as the year progresses. Most notably, it said, the company has been deferring revenue from some big contracts -- including a giant one with Wellmark -- that it should begin to recognize in the third and fourth quarters of this year. In addition, it said, the company is looking for "significant" second-half growth from its maternity business as well.

However, it seems that particular business proved disappointing in the final period of this year. Indeed, First Albany analyst Glenn Garmont blamed "greater-than-anticipated seasonality" in the maternity unit for much of the company's latest shortfall.

Garmont remains bullish on Matria nonetheless. He continued to express faith in the company on Friday, despite the latest disappointment, and suggested that investors would be rewarded if they did the same.

"We are maintaining our buy rating, as we believe that the anticipated decline (in the stock) on Friday may represent an attractive entry point, given that positive industry drivers remain intact," Garmont explained. Moreover, "we expect Matria could announce new health plan contracts between now and 1Q earnings that would give investors increased conviction in the very steep earnings ramp offered by management."

Garmont personally believes that Matria's stock could hit $31 a share over the course of the next year. His firm makes a market in the company's securities.

Matria dropped $1.78 Friday to $25.61.

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