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The Key Thing About Change Healthcare (CHNG) That Nobody Is Talking About

Greenlight Capital Fund recently released its Q1 2020 Investor Letter, a copy of which you can download below. The fund posted a return of -21.5% for the quarter, underperforming its benchmark, the S&P 500 Index which returned -19.60% in the same quarter. You should check out Greenlight Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.

In the said letter, Greenlight Capital highlighted a few stocks and Change Healthcare Inc. (NASDAQ:CHNG) is one of them. Change Healthcare is a healthcare technology company. Year-to-date, CHNG stock lost 28.5% and on May 15th it had a closing price of $10.64. Its market cap is of $1.47 billion. Here is what Greenlight Capital said:

“We initiated a large long position in Change Healthcare (CHNG). CHNG is a healthcare technology company that owns the largest medical claims clearinghouse network and several leading software platforms. For years, we were short athenahealth, which promoted itself as the “backbone of the healthcare internet.” That label is more aptly applied to CHNG.

While similar healthcare assets trade for over 20x free cash flow, we were able to acquire our stake in CHNG for $11.40, or 9x our estimated free cash flow. Until recently, McKesson’s large retained ownership of the company rendered the stock less liquid, with an available float of under $1 billion and less than one quarter of all outstanding shares. We believe this limited investor interest in the new company. In February, McKesson announced an exchange offer that increased CHNG’s public float by more than 3x, making the company investable to a much broader range of potential shareholders.

The company has not shown meaningful top-line growth recently. We believe growth in the company’s core businesses has been obfuscated by several one-time factors including planned contract eliminations, the rollout of a new imaging platform, and the shift to ASC 606 accounting standards. With these events now behind the company, we expect solid growth in the coming years with the resumption of elective surgeries. CHNG shares ended the quarter at $9.99.”

In Q4 2019, the number of bullish hedge fund positions on CHNG stock increased by about 14% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with CHNG’s growth potential.

Disclosure: None. This article is originally published at Insider Monkey.

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