- The Washington Times - Monday, March 22, 2004

Stocks for Bethesda artificial-limb maker Hanger Orthopedic Group Inc. edged up after the company bought four more patient-care centers in Ohio.

Hanger Orthopedic, which owns 585 patient-care centers in 44 states and has 3,115 employees, bought all the patient centers of the Brace Shop Prosthetic Orthotic Centers for an undisclosed price. The Brace Shop had $5.2 million in annual sales.

Hanger Orthopedic made seven acquisitions in 2003 and two this year.

The latest acquisitions come less than two months after Hanger bought Rehab Designs of America Corp., a Riverside, Mo., firm with 21 patient-care centers nationwide.

The company also acquired Advanced Prosthetic Services and ADL Prosthetic & Orthotic Services in December.

Several analysts say the series of acquisitions has helped the company spur sales growth and become a dominant prosthetic provider in the nation.

Hanger Treasurer Jason Owen said the company may make a few more acquisitions and plans on bringing down debt and signing more managed-care contracts with health care institutions.

Not all acquisitions have been fruitful.

The company was forced to restructure after it acquired Novacare Inc. in 1999 for $445 million.

The purchase increased the company’s size 50 percent and added about $40 million to its debt, which totaled $455 million.

Michael Petusky, a securities analyst for Richmond brokerage firm Thompson, Davis & Co., said the company has spent the past year paying down some debt and will make “a considerable dent” within two years.

Mr. Petusky owns less than 1,000 Hanger shares, but Thompson Davis does not have any business with the company.

Hanger has about $410 million of debt, Mr. Owen said.

Mr. Petusky, who rated the stock a “buy, forecast that Hanger, which showed a smaller income in 2003, will reach $1.33 earnings per share this year from $586 million in sales.

Hanger reported a 52 percent drop in 2003 profit to $8.8 million (39 cents per diluted share) from $18.4 million (86 cents) in the previous year. Diluted earnings per share include the value of convertible warrants and stock options.

Sales in 2003 rose to $547.9 million from $525.5 million in 2002.

Despite the drop in income, which included charges from the company switching its billing system, Hanger’s stock has rebounded from a one-year low of $9.05.

Shares closed yesterday on the New York Stock Exchange at $17, up 2 percent from $16.60 last week.

David MacDonald, a senior research analyst with Boston investment bank Leerink, Swann & Co., said he was concerned about one-time charges in 2003 extending into the next few financial quarters.

“But the company should have an attractive back-half of the year once it ramps down on its spending,” Mr. MacDonald said.

He rated Hanger as “market performance,” Leerink’s middle rating.

Mr. MacDonald does not own any Hanger stock and Leerink has no banking relationship with the company.

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