Roth starts Foundation Healthcare at buy

Roth Capital Partners has initiated coverage of Foundation Healthcare (OTC:FDNH) with a “buy” rating and $6 price target. The stock closed at $3.05 on Monday.

“The impetus for our buy rating is the potential of the company’s acquisition of University General Hospital (UGH) in Houston to drive increased EBITDA and EPS,” writes analyst Scott Henry, adding that progress should start to be apparent with first quarter results this year to be reported in May.

Mr. Henry said the “transformative acquisition,” which was completed in January, could bring about $55-million to $60-million in revenues to Foundation in 2016, with potential growth thereafter.

An expanding top-line is only one driver of the business model. “Equally important will be the ability to leverage the greater size and deliver higher margins to the bottom line,” he said. “This is expected to show up in 2016 numbers and could continue to increase in outer years.”

He is targeting EPS turning positive in 2016 and reaching 15 cents in 2017, with EBITDA possibly doubling to $15-million in 2016.