Amedisys Inc. (AMED)

My limited order for AMED just got hit this morning. AMED is on my watch list and the earnings report this morning was very good, in my view. It earned 0.64 (33% vs Q3/05), beating consensus by 3 cents. Revenues up by 22%, with majority from organic growth. It increase its revenues guidance to $530-$540, and EPS to $2.3-$2.35. The company maintained that it will grow its top line by 10%-15% in the next few years, with combination of organic growth and acquisition.

Despite this gap up, valuation remains reasonable. It is traded at about 18X of 06EPS, and about 14X of 07EPS, which I believe has to move up by analysts. I believe it could hit $3.0 by 07, and with a 18X multiple, it should hit $54 by the end of next year, a decent return from current level. More importantly, down side risk is limited as it is in a defensive sector, has not run as much, great earning report and forward guidance, clean balance sheet, and some inside buying. My target is $50.

Position: Long AMED