Matria ( MATR) has finally transformed itself into a pure-play disease-management company.

After months of trying, Matria this week found a buyer for its remaining noncore diabetes business. All told, the company expects to pocket $155 million for its domestic and foreign diabetes units combined.

That sum falls well short of outside projections that, at one point, ranged from an estimated $250 million to $350 million for those two divisions. Moreover, the proceeds cover just one-third of the $445 million Matria spent on CorSolutions -- a competing DM company -- in its quest to become a pure player in the field.

Even worse, some experts feel, the pure-play DM business seems less rosy than it once did. Notably, they point out, giant health insurers like Aetna ( AET) and Cigna ( CI) have stopped outsourcing some of their DM programs and started handling more and more of those services themselves. Meanwhile, they add, other competitors have already snagged big contracts with Medicare and Medicaid -- a new high-growth opportunity -- whereas Matria has yet to establish itself in this important space.

For its part, Matria says that the asset sales went as planned and that the company remains on track to hit its debt-reduction target for this year. The company has also expressed little concern about mounting competition from health plans and insists that it, too, will join the Medicare and Medicaid games going forward.

"We actually welcome the managed-care companies that roll out disease-management programs," says Rich Cockrell, vice president of investor relations for the company. "It really is a testament to the importance of the industry. ... And we definitely think that Medicare and Medicaid are both growth opportunities for the industry as well as us."

By some measures, however, Matria's evolution into a pure-play DM company looks like a major disappointment so far.

First and foremost, Matria's stock actually fetches less now than it did when the company laid out plans to streamline its business last year. The shares hovered in the mid-$30 range when the company announced its wildly celebrated acquisition of CorSolutions in mid-December. The shares soared to an all-time high of $45 a few months later -- with enthusiasm for that transaction at its peak -- but soon wound up hammered by warnings from short sellers and, later on, from the company itself.

To be fair, however, the stock has regained some lost ground in recent weeks. The shares, which bottomed out at $19.77 following a dismal quarterly report in June, rose 14 cents to $26.94 on Monday.

Still, Matria bears -- who have sold more than 20% of the company's stock short -- foresee another fall ahead.

Giant Competitors

Going forward, pure-play DM outfits like Matria -- and even-larger Healthways ( HWAY) -- could face stiff competition from some of the very companies that they have counted as their clients in the past.

Take a look at Aetna, for example. Just this month, the giant health insurer came out touting its own so-called wellness offerings. The company bragged that it has greatly enhanced its wellness programs and expressed a strong commitment to this emerging business.

Meanwhile, the South Florida-Sun Sentinel reported last week, other giant health insurers like Cigna and Humana ( HUM) have been winning accolades for similar programs of their own.

Matria could face a double-whammy as a result. To be fair, the company relies directly on employers -- as opposed to insurers -- for most of its business. But some of those employers, seeking simpler and possibly cheaper alternatives, could start to bypass pure-play DM companies and choose some increasingly well-equipped health plans to handle their DM programs instead. Meanwhile, health plans that have themselves doled out business to DM companies in the past could become less inclined to do so going forward.

Some Wall Street experts have started to notice. When Healthways announced plans this summer to acquire competing LifeMasters, for example, one analyst quickly pointed out that two big LifeMasters clients -- Aetna and Blue Cross/Blue Shield of Tennessee -- had already laid out plans to start handling their DM programs themselves.

Recent Wins

Since then, Matria has offered some reassurance with news of recent business wins.

Last week alone, in fact, the company announced six new contracts and expansions to five existing accounts. As is normally the case, the vast majority of that business came directly from employers -- including a new Fortune 50 client -- although a health plan made the list as well.

Overall, however, those accounts look rather modest in size. The largest contract should generate between $1 million and $2.9 million. The rest will deliver less than $1 million apiece, with most bringing in just a fraction of that amount.

Still, BB&T Capital Markets analyst K. Newton Juhng saw reason to celebrate. Juhng applauded the company for finally scoring a $1 million-plus contract -- following some unexpected setbacks in recent months -- and for landing that account from a major corporation to boot. The analyst expressed clear comfort that the company had won some health plan business as well.

"The health plan deal was less than $1 million of annual revenue, making it a rather small deal, but it does show that Matria should continue to sell into the health plan side of the business," Juhng wrote last week. "This dynamic was discussed at a number of meetings that we have had with investors, as some were afraid that the health plans would run away from doing business with Matria. While one contract does not make a trend, we are encouraged to see the company pull this competitive win."

BB&T has a buy recommendation and a $31 price target on Matria's stock. The firm hopes to receive investment banking business from the company over the next three months.

Heavy Favorite

SIG Susquehanna analyst Constantine Davides favors giant McKesson ( MCK) over Matria and Healthways alike.

McKesson is best known as one of the largest drug distributors in the country. But it has recently scored headlines for winning disease-management contracts -- particularly from Medicaid -- as well. Recently, Davides notes, McKesson inked a $4 million deal to provide DM services through a pilot program with the huge Medicaid program in California. Going forward, he predicts, McKesson could soon partner with Pfizer ( PFE) to win an $18 million DM contract for the Medicaid program in Florida.

Based on Davides' analysis, McKesson -- with nearly a dozen state clients -- already ranks as the dominant DM player in the growing Medicaid space. LifeMasters, which could soon join forces with Healthways, has a couple of Medicaid accounts of its own. But so far, at least, Matria has yet to enter the Medicaid business at all.

Davides notes that Matria has indicated that it will "selectively pursue" Medicaid contracts going forward -- and, indeed, adds that the company "may be in the early stages" of seeking out such accounts right now. At the same time, however, Davides seems to recognize that competition could prove fierce. Faced with the likes of McKesson, he points out, even LifeMasters -- with Medicaid experience already -- has started to lose some ground.

SIG Susquehanna has a positive rating on McKesson and neutral ratings on both Matria and Healthways. The firm seeks to do business with the companies it covers.

For its part, Matria seems confident that it can break into the Medicaid business with ease. In a recent interview with TheStreet.com, in fact, Cockrell portrayed Medicaid as a "key part" of the company's growth strategy going forward. And he seemed certain that the company would hit its aggressive near-term targets -- despite past shortfalls -- in the meantime.

"I know there have been a couple of hiccups historically," Cockrell admitted. "But that's just what a young company goes through when it makes a significant acquisition ... we have very good visibility into our business and our revenue opportunity -- and we remain pretty comfortable with our guidance."