First Health Rakes in the Money

First Health Group (FHCC ) is among the small fry in managed care. But scores of big corporations, including McDonald's, and big outfits for government employees, including Mail Handlers Benefit Plan, have signed on to use its services. The reason: It has helped them save millions of dollars in health-care costs. First Health has 82% of all U.S. private doctors and 69% of hospitals in its network of service providers, at much lower rates than competitors charge, says CEO Ed Wristen.

First Health takes as its commission a percentage of what its clients save. Elliott Schlang, managing director of LJR Great Lakes Review, a research newsletter, rates the stock a buy. The company is a money machine, he says, with a gross cash flow of $2.16 a share. Schlang expects First Health to earn $1.55 in 2003, up from $1.28 in 2002. Next year, he expects earnings of $1.80. The stock, now at 24.70, hasn't strayed far from its 52-week high of 30. It trades at a price-earnings ratio of 19 vs. 22.3 for its peers. Analyst Ed Kroll of SG Cowen Securities rates the stock a strong buy. "First Health is our top pick among mid-cap managed-care stocks," he says. Cowen plans to do banking for First Health over the next three months.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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