Is That Too Much To Ask? Is It Beyond Our Reach?

Fonar Corporation: Stellar Earnings, Great Technologies, And New Developments

Introduction

On Tuesday, Dec 31st, 2013, shares of Fonar Corporation (NASDAQ:FONR) closed at $19.87, up by more than 9% within one month and more than 388% within the past year. FONR currently has a market capitalization of $135 million and a P/E of 16, and P/CF of 11. The increasing shares prices momentum triggered me to feature FONR in this “recent movers report.”

Source: Finviz

The Company

Fonar Corporation “FONAR” is a Delaware incorporated company, headquartered in Melville, New York. The company engages in the business of “designing, manufacturing, selling, and servicing of the magnetic resonance (MRI) scanner to private physician imaging centers and hospitals.”  FONAR’s businesses consist of the following subsidiaries: the diagnostic centers management, and the manufacturing and sales of MRI scanners. FONAR operates its diagnostic centers management via Management Corporation of America (HMCA), which is a wholly owned subsidiary company. HMCA provides management services including “administrative services, billing and collection services, office space, equipment, repair, maintenance service to hospitals and physicians.”

The Company’s MRI manufacturing and sales subsidiary features the OPEN SKY MRI® SCAN room and the Upright® multi-MRI Scanner. The OPEN SKY MRI® SCAN room alleviates claustrophobia that limits conventional MRIs’ usefulness, offers stunning landscape murals and creates a feeling of openness, tranquility, and patients or users friendliness. For instance, some murals even offer cartoons and nursery rhymes for children.

Source: FONAR

The Upright multi-positions MRI (Upright® MRI) scanner can scan patients in weight-bearing positions such as standing, sitting, or bending.  The weight-bearing positions elicit the symptoms associated with the patient’s chief complaints; thus, enabling this scanner to detect pathology more accurately than a conventional MRI scanner does … especially in patients who have negative MRI results yet remain symptomatic. Besides, the Upright MRI also offers other advantages.

Source: FONAR, UCLA Landmark Study

Recent Developments

On March , 2013, HMCA acquired a 50% controlling interest in Health Diagnostic Management, LLC (“HDM”). This strategic expansion increased the company’s total Upright MRI centers under management from 11 to 23 centers. According to Doctor Damadian, President and Chairman, “By combining the resources of HMCA and HDM, we will enjoy the benefits of economies of scale, shared administrative and technical expertise and capabilities, and joint marketing strategies.”

Current Financials

On Friday November , 2013, FONAR reported revenue of $16.8 million and net income of $3.6 million in its first quarter of fiscal year 2014. In comparison to the same period a year prior, net income and revenue markedly increased by 77% and a 104%, respectively. Moreover, the diluted earnings per share (“EPS”) for the reporting period were $0.37, representing 68% increased.  Raymond Damadian, M.D., FONAR’s President and Chairman, attributed these stellar earnings to the landmark HDM acquisitions.

In term of FONAR’s subsidiaries, HMCA earned $14.3 million, which is a 149% increased from the same quarter a year prior. Contrary to HMCA’s stellar performance during the same time, MRI sales were $28,000, decreasing from $1 million and representing 97.3% declined. The company believes that the declined in MRI sales is due to continuing worldwide economic uncertainties as well as tightening of credits. Most clients purchase MRI on credits, and the tightening of credits hinders MRI purchasing activity.

Competitors

FONAR’s competitors include large companies such as General Electric, Siemens, Hitachi, Phillips and Toshiba. FONAR believes that larger competitors achieve greater market penetration in MRI sales due to their name recognition, larger sale forces and attractive financing terms.

Insiders Ownership And Insider Transactions

FONAR has 2.08% insider ownerships, and the company has only one insider selling during the 2013 fiscal year. On June 20th, 2013, Doctor Damadian sold 4,000 shares directly to the market at the price of $6.18 for a total value of $24,720.

FONAR’s Key Highlights

  1. The company’s aggressive growth resulting from the expansion of its diagnostic management centers subsidiary (“HMCA”).
  2.  Earlier this year, HMCA nearly doubled its Upright MRI centers to 23 under management.
  3. The expansion of HMCA allows the company to enjoy  straight quarterly earnings increase.
  4. No significant Insiders ownership or transaction

Final Remarks

FONAR’s Upright Multi-Position MRI is revolutionary for its user-friendliness, in addition to other intrinsic properties.  Given FONAR’s innovative technologies and recent developments and the increasing shares price momentum, I strongly believe that FONAR is an attractive investment.

"Integrity, Ingenuity, And Essence ... Essentially All Else Follows"

 

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