Cases in Healthcare Finance, Seventh Edition by George H. Pink;Paula H. Song; & Paula H. Song

Author:George H. Pink;Paula H. Song; & Paula H. Song [Pink, George H. & Song, Paula H.]
Language: eng
Format: epub
ISBN: 9781640553149
Publisher: Independent Publishers Group
Published: 2021-11-25T00:00:00+00:00

CASE

16

PACIFIC HEALTHCARE (B)

STOCK VALUATION

PACIFIC HEALTHCARE IS an investor-owned hospital chain that owns and operates nine hospitals in Washington, Oregon, and Northern California. Marcia Long, a recent graduate of a prominent health services administration program, has just been hired by Washington Medical Center, Pacific’s largest hospital. Like all new management personnel, Marcia must undergo three months of intensive training at the system level before joining the hospital.

In Case 14, Marcia conducted an analysis of Pacific’s bonds and presented her findings to the company’s executive committee. Pacific’s chief financial officer, Hugo Welsh, was very impressed with the quality of her presentation. Furthermore, other members of the committee stated that they learned a great deal about debt financing from the presentation and would like to see a similar presentation on equity financing. Because Marcia would be leaving corporate headquarters to start her hospital assignment in less than four weeks, Hugo immediately assigned her the task of analyzing Pacific’s equity situation and preparing another presentation for the executive committee.

Marcia began by reexamining Pacific’s annual report to get some basic financial data. Then, she searched Yahoo! Finance (http://finance.yahoo.com), CNN Business (www.cnn.com/business), Bloomberg (www.bloomberg.com), and MSN Money (http://money.msn.com) for current market data as well as analysts’ forecasts for Pacific Healthcare and the market. She discovered that Pacific’s stock is currently (December 31, 2021) selling for $8 per share, current dividend is $0.480 per share (paid on December 31, 2021), and beta coefficient is 1.2. In addition, she learned that the yield on long-term Treasury bonds is 5 percent and that a market return of 11 percent is expected. Most analysts forecast that Pacific will grow about 10 percent per year for the next five years (2022–2026) and 4 percent per year thereafter (2027 and beyond). Based on these growth forecasts, she assembled the forecast dividends per share, as shown in exhibit 16.1.

EXHIBIT 16.1 Pacific Healthcare: Historical and Forecast Dividends per Share

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