The Worst May Not Be Over For MedCath (MDTH)

MedCath Corp. (NASDAQ: MDTH) took a particularly brutal beating at the end of last week after posting disappointing results. The stock fell nearly 50% on Friday to $7.55, a 52-week low against a period high of $27.  We covered this stock this weekend in our weekly "Under $10 Stocks" newsletter that went out Sunday night, and a brief synopsis has been provided below:

The firm which provides products for diagnosis and treatment ofcardiovascular disease posted a revenue increase of 4.0% to $150.9million in the fourth quarter of fiscal 2008 from $145.1 million in thefourth quarter of fiscal 2007. Income from continuing operations was$0.4 million, or $0.02 per diluted share, in the fourth quarter offiscal 2008 compared to $2.5 million, or $0.11 per diluted share, inthe fourth quarter of fiscal 2007.

Aside from weak results, the market was upset by a $160 million loan facilitywhich the company took on. It has as security a lien on the assets ofMedCath and its wholly owned subsidiaries. MDTH also said it wouldsuspend guidance due to difficult conditions in the overall medicalindustry. MedCath has long-term debt of $116 million, which is inexcess of its cash position of $94 million.

Spending on high-end medical procedures and equipment is bound to be hit by the recession. MDTH has a rough road ahead.

From the $7.71 close Friday, we expect the shares to go lower.

Douglas A. McIntyre
November 17, 2008