CorVel Corp.: Taking care of business

Jennifer Schonberger | Mar 28, 2008 4:22pm EDT | Comment

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CorVel Corp. (Nasdaq:CRVL)
Irvine, Calif.
http://www.corvel.com

52-week low / high: $21.38 / $33.56
Shares Outstanding: 13.73 million
Market Capitalization: $415 million

In the land of all things health insurance, the grease that has kept the bureaucratic wheels efficiently turning as of late has been CorVel Corp. (Nasdaq:CRVL), a medical cost containment and managed care services provider.

The California-based small cap, which is in the process of regrouping and positioning itself to capitalize on favorable industry trends, manages the medical costs of workers' compensation and other healthcare benefits, primarily for coverage under group health and auto insurance policies.

The current market environment and industry trends should bode well for CorVel going forward. Although claims volumes persist at historic lows and premiums remain soft, stabilization may be on the horizon. Years of double-digit premium rate reductions appear to be bottoming and there are reports of a potential slight increase in rates for 2008.

The industry is also experiencing a wave of consolidation, especially in the preferred provider organization (PPO) area. While this trend has hindered certain companies that lease access to technology or PPO networks, CorVel should benefit from the consolidation wave due to its long-term investments, its proprietary assets in its PPO, CorCare, and its systems. For example, the company reported in September that it added Integrated Health Plan, as an affiliate to its PPO.

Aside from favorable industry trends, CorVel is in the process of revamping and regrouping their segments, which are showing signs of improvement.

The company’s patient management business has begun to pick up after CorVel acquired two claims administration companies during the first-half of 2007. The company’s segment saw revenue jump 29% to $33.3 million in the fourth-quarter, while profit surged 174%.

In its network solutions unit, CorVel has now reported 12 consecutive quarters of margin improvement through continued revenue growth in its product line, savings improvements and internal efficiencies. Revenues from network solutions products grew 6.2% to $43.3 million for the quarter, while profit increased 15.6% from the year ago quarter.

Overall, the small cap saw a better-than-average fourth quarter: for the three months ended Dec. 31, 2007, CorVel reported earnings per share of $0.43, up 61% from the $0.27 earnings per share reported for the quarter ended December 2006. Revenues for the quarter were $76.7 million, up 15% from $66.6 million in the December quarter of 2006.

CorVel’s case management product line has shown improved performance, as the company has moved away from low price business and improved internal efficiencies. While revenues in the case management segment have declined in 10 of 11 quarters, the company says it appears it has found bottom and will begin to see an upturn in this segment as evidenced by an improvement in the segment’s revenues and margins over the past two quarters.

Monitor CorVel as it capitalizes on favorable industry trends and continues greasing the health insurance gears with its expertise.

Note: CorVel Corp. (Nasdaq:CRVL) is on the “Watch List” of Rising Star Stocks, a subscription investment newsletter from Business Financial Publishing, which also publishes SmallCapInvestor.com. As a Watch List company, CorVel displays many characteristics found in successful stock winners, and is being closely monitored for possible inclusion in the Rising Star Stocks portfolio at a later date.