.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:

Dear L.J.:

Computer Programs and Systems Inc. (CPSI-$26.19) is an information technology company that designs, markets and installs health-care information technology solutions for small to mid-sized hospitals.

This is an unusual company for three reasons:

1. Though most public companies have billions and billions of shares outstanding, CPSI has just 11 million shares out.

2. Though it’s extremely rare to find an information technology company paying a dividend, CPSI’s current $1.44 dividend (which exceeds earnings by a tad or two) yields 5.5 percent.

3. It has zero long-term debt, and its return on total capital and return on equity averaged a phenomenal 45 percent between 2001 and 2007.

Because CPSI’s services include electronic billing, statement processing, business office and payroll outsourcing, contract management and insurance services plus system implementation and training and conversion services, earnings have enjoyed remarkable growth and so has its dividend.

This fine niche company, with contracts serving 645 mid-sized hospitals in 46 states, has 770 employees on its payroll. Morgan Stanley took this company public in 2002 at $15 per share, and by early 2006 those shares were trading at $50 plus change. Not bad for a small-cap company whose 2006 revenues were $116 million with a return on equity of 41 percent.

But it seems that the Street is really concerned about Medicare’s 2008 budget proposals for lower reimbursement and tough reimbursement and payment guidelines. These anticipated reductions — which represent a significant portion of compensation — will hurt the smaller hospitals that represent CPSI’s primary source of revenues. These cuts will quickly force the small acute-care and specialty hospitals to husband their capital spending. The budget restrictions will make it difficult for CPSI to bring in new business and may place constraints on 2008 revenues.

In addition, CPSI probably will find the competition a lot tougher than it has in the past. Much larger companies, such as McKesson and Cerner, are beginning to solicit the smaller hospital groups, and their pricing — some say — is coming in below costs to capture the market from smaller operators like CPSI. And though several investment services believe CPSI will report higher earnings for 2008, other investment services are not as sanguine. MSN rates the stock a 5 out of 10, Value Line believes the share price is much too high, Prudential downgraded the stock to “underweight” (I think that means “sell”) and Economicinvestor believes the economy’s impact on the company is not positive. Several other suits feel that CPSI may reduce its dividend next year. I like the company but I would not recommend its purchase.

NightHawk Radiology Holdings Inc. (NHWK-$23.46) turns me on, even at 29 times this year’s expected earnings of 80 cents a share. This company, founded in 2001 and home ported in Coeur d’Alene, Idaho, provides radiology services to more than 1,000 hospitals throughout the United States. Almost all of NHWK’s interpretations are off-hour reads, which are done remotely by trained radiologists in Sydney, Australia, and Zurich, Switzerland. NHWK has a team of board-certified radiologists and hospital-privileged radiologists who read the films and provide interpretations.

This is a neat, nifty company with zero debt, no preferred stock, no pension liabilities and 30 million shares outstanding with Vanguard, Fidelity, Northern Trust, T. Rowe Price, Waddell & Reed and Federated as large shareholders. These institutions wouldn’t own NHWK unless they believe the shares are headed higher.

Revenues are increasing at an impressive rate and are expected to come in at $147 million this year with earnings of 80 cents per share. Several services expect revenues of $305 million by 2011 with earnings of $1.75. So now your friendly radiologist can take a couple of hours off on a Saturday night, and if an emergency arises, NightHawk will be there to do the read. I don’t know of a public company that competes with NHWK, and I think this is an awesome concept. I think the stock could double in the next three years. Buy it.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net.

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