In the spring of 2012, a client asked me to find a unique company in the healthcare sector that might have a new concept that will explode when it hits the market. The client who asked me to do this is familiar with the sector, but wanted the viewpoint of a professional. I was up to the challenge.
The struggle for me, though, was looking for such a company that still fit the financial demands I have on a company’s balance sheet, and have an appropriate margin of safety. There were four in the space that had some promise; AngioDynamics (ANGO), Bio-Reference Labs (BRLI), Cyberonics (CYBK), and Hi-Tech Pharmacal (HITK), Bio-Reference Labs was the only I recommended to him. At the time, BRLI was trading on the low $20s; now it is at $29.51. To this day, it is still a company one wants to adding to one’s portfolio.
According to the company, “Bio-Reference Laboratories Inc. (BRLI) is the fourth largest full service laboratory in the United States and the largest independent regional laboratory in the Northeastern market, primarily a clinical testing laboratory servicing physician offices with concentrations in the focused markets of esoteric testing, molecular diagnostics, anatomical pathology, women’s health and correctional health care. BRLI operates as a national oncology laboratory as GenPath. Better science, superior technology and better service have enabled GenPath to earn a reputation as one of the premier hematopathology laboratories in the country. BRLI’s innovative technology platform for sexually transmitted infections has enabled it to expand as a national laboratory in the area of Women’s Health. GeneDx, a wholly owned subsidiary, is the BRLI genetics laboratory and is typically recognized as the leading laboratory for testing of rare genetic diseases; GeneDx has now become a technology leader with GenomeDx, based on a CGH array platform and its NextGen sequence offerings that are currently offered in cardiology and will be offered in the future in other disease specific areas.”
What makes this company unique, though, is their process that allows doctors to develop a cancer therapy specific to a patient’s needs based on the DNA. This process allows physicians to design specific cancer therapies to combat a patient’s specific needs. Additionally BRLI has diagnostic programs to detect early onset cancer and inherited cancers. If one wants innovative companies in their portfolio, this BRLI will fit nicely.
The company is cash rich with almost no debt. Return on equity has averaged 19% with revenues and earnings growing at 21% and 24% respectively. The current price/earnings ratio is at 17, which is below the historical average of 21. With all of this, the fair value price for the stock is $43.50, which provides a 47% margin of safety compared to its current price of $29.51. I will definitely make sure my former client knows about this.