Wall Street loves Lincare's chances under competitive bidding

A lot of big time Wall Street investors and hedge fund managers think that competitive bidding is going to be very, very good to Lincare. That's because, they say, Lincare has the economies of scale that will help it operate profitably once competitive bidding slashes Medicare reimbursement to the bone.

Sounds a lot like what the industry has been saying all along: Competitive bidding will benefit Lincare and other national companies that have the scale and resources to weather the reimbursement cut and outlast smaller competitors. Here's my question to lawmakers and bureaucrats who support competitive bidding: Can any government program be considered good if it handicaps small companies, maybe even drives them out of business, but allows corporate giants to prosper?

I don't think so.

Here's what a hedge fund analysts told me recently: "People expect Lincare to be the last man standing, and that they are going to be able to gain market share."

In the short term, this analyst said competitive bidding will hurt Lincare's profits. But in the long run, he added: "I think they are in the best position in the marketplace. They are the biggest and have scale advantages."

He's not alone.

On June 22, Darren Lehrich, an analyst with Deutche Bank, upgraded Lincare to "Buy" from "Hold." That recommendation pushed Lincare's stock up 7%, making it one of Nasdaq's 10 biggest percentage gainers for the day.

In making his recommendation, here's what Lehrich said in a note to investors:

"We consider the company's initiation of a dividend as an important signal of strength, and we remind investors that competitive bidding will play-out over a multiyear timeframe that gives Lincare plenty of runway to continue to gain share."

You get the picture. Competitive bidding is great for Wall Street, but not so good if you are a small HME provider who works on Main Street.

Mike Moran