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Accredo Health


, a company that over the past month has twice changed its earnings guidance, disclosed a $36 million charge related to accounting issues, and fired and sued its auditor, still saw its stock rise as much as 25% Monday following at least two analyst upgrades.

Accredo lost more than a third of its value last month after lowering earnings guidance because of weakening revenue and accounting problems it inherited from a recent acquisition. On Monday it pushed earnings estimates for the fiscal year back up (excluding the charge), sending shares as high as $18.95, up $4.28. They've since settled back to $18.36, up $3.19, or 21%.

Some said the company's explanation for its newfound earnings optimism was lacking.

Raymond James analyst John Ransom said he's not sure why there has been so much volatility in the firm's guidance over the last month. "What is different now vs. then, I still don't think is totally clear," he said.

Ransom said the company had a "hastily prepared" conference call last month and "probably overreacted" to some shorter-term trends. Back on April 8, the company lowered its profit estimates to a range of $1.20 to $1.25 a share from a previous range of $1.33 to $1.38, saying the company had not made enough visits to doctors, partly because the sales force was distracted by the acquisition of Gentiva.

On Monday, Accredo increased its earnings estimates (again, before the charge) to between $1.32 and $1.34 a share for the fiscal year. But management offered little if any explanation about why the numbers have swung so much in less than a month.

Although analysts expressed frustration at this, it wasn't enough to keep several from upgrading the stock, saying that sales of higher-margin products appear stronger compared with those of lower-margin therapies, and that the stock is undervalued on the basis of new estimates for 2004.

Raymond James' Ransom raised his rating to strong buy from market perform, noting that Accredo trades at about 12 times 2004 estimates, while competitors

Priority Healthcare



Express Scripts


trade at P/E multiples of 14 and 16, respectively.

Deutsche Bank analyst Cheri Walker also raised her rating to buy from hold, saying the firm's new fiscal 2004 guidance of $1.53 to $1.58 a share implies a 14% to 20% earnings growth rate on roughly 10% revenue growth.

"The results for the third quarter look strong, and the outlook for fiscal 2003 and 2004 are not nearly as bad as initially expected," added J.P. Morgan analyst Lisa Gill in a research note. "The company has taken a number of actions related to its sales force to enhance revenue growth, and the company has stated that early indications suggest a positive impact."

J.P. Morgan does not have a banking relationship with Accredo, though Deutsche Bank and Raymond James do.

In the latest twist, Accredo announced Monday afternoon that it has fired Ernst & Young as its independent accountant and filed a lawsuit seeking $53.3 million from the firm, representing the pretax amount of the reserve understatement. The suit relates to the "accounting procedures used by E&Y in determining the adequacy of the reserve against the recorded accounts receivable" that Accredo acquired when it bought the Specialty Pharmaceutical Services unit of Gentiva Health Services in June 2002.

"Ernst & Young was surprised by Accredo's actions today," a spokesman for the firm said. "We believe that our work fully complied with all professional standards and we will defend ourselves vigorously."

For the third quarter, Accredo reported a loss of $17.77 million, or 37 cents a share, compared with $8.99 million, or 22 cents per share, in the same period a year ago.

The loss was attributed to the $36 million Gentiva writedown. "They clearly overestimated their ability to collect on some of these receivables," Ransom said. "This was a one-time financial bet and it didn't work out, but it doesn't reflect the forward looking earnings and growth rate of the business."

Excluding the charge, Accredo said it earned $17.93 million, or 37 cents per share. Analysts surveyed by Thomson First Call had expected 31 cents per share.

Accredo, which distributes drugs for diseases such as multiple sclerosis and hemophilia, expects earnings of 58 cents to 60 cents per share for fiscal year 2003, including charges. For fiscal 2004, the company forecasts earnings of $1.53 to $1.58 per share on revenue of $1.475 billion to $1.525 billion. Analysts are calling for $1.40 per share, according to Thomson First Call.