Post-Health-Reform Winner: Under the Radar - TheStreet



) -- Now that the public option was removed from the heath-care bill being debated in the Senate, health-care providers are heaving a sigh of relief.

With any bill likely to provide only modest changes to the status quo, profits should continue to flow unencumbered. For health-care companies like Miami-based

Continucare Corp.


, which lives off HMO and Medicare fees, this is a particularly bullish signal. Continucare beat fiscal first-quarter earnings, and analysts are projecting strong growth. The stock looks primed to take off in 2010.

Continucare's shares have jumped 88% over the past year, outpacing the Russell 2000's 30% advance.

Continucare brings in the majority of its revenue through managedcare agreements with HMOs like


(HUM) - Get Report



(WCG) - Get Report



. Basically, the deal works so that for every patient who sees a Continucare physician as his primary-care doctor, the company gets a portion of the premiums the patient pays in exchange for the financial responsibility for the treatment of that patient. Clearly, this model has room for abuse since the company makes money based on what's left over after giving care, leading to the potential for the company to avoid treatment to retain bigger profits. But simple market forces prevent this from happening: The patient can walk if he's unsatisfied.

First-quarter revenue increased nearly 17%, so, clearly, the service is found to be acceptable by patients. The company makes larger profits through smarter uses of tests and procedures rather than from ignoring potentially serious conditions. With a return on equity of over 14% and no debt on the balance sheet, Continucare isn't only profitable, but also stable.

Continucare's price-to-earnings ratio is 13.8, half that of its health-care peers. Growth is also projected to be very strong. A price-to-earnings-to-growth ratio of 0.7 again makes this stock look like a steal.

A few years ago Continucare was trading at around a dime a share. Since then, it has proven its model. Small caps can offer explosive growth but are usually highly leveraged or unprofitable, with the hope of any significant profitability years away. You probably won't have to wait as long for Continucare to pay off.

-- Reported by David MacDougall in Boston.

Prior to joining Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.