First Health Group Corp [FHCC]

First Health Group Corp [FHCC] – Brief Article

First Health’s third quarter earnings were in line with expectations, and seemed to reinforce the notion that the company has made great progress in dumping unprofitable business and focusing on larger accounts. Prospects look encouraging with several new contracts starting in January; the company itself has been repurchasing shares with free cash flow. In our August report of insider accumulation at FHCC, we noted that insiders were exercising nonqualified stock options even though the stock had moved off its lows. That they were accumulating without waiting for a pullback implied that they expected an upward price movement. It turns out that they were correct, and in fact, recent insider activity bears a striking resemblance to that of the summer. In fact, these insiders, having been both well-timed buyers and sellers in the past, are acquiring shares in record numbers. From September 23 to October 6, three insiders acquired 84,000 shares through options exercises and an open-market purchase at $21 per share.

Secretary & General Counsel Director Ronald Galowich cleared out four separate series of options to acquire 26,000 shares. The options had been exercisable since ’94 and would not have expired until ’01 to ’04. Mr. Galowich had been a seller in September ’96 and August ’97 before stock price drops. Director Robert Colman, partner at a private banking firm, acquired 38,000 shares through the exercise of five separate options series. Again, most of the options had been exercisable for some time and all would not have expired until at least ’02. Mr. Colman sold shares in June ’98 at the highs, and then again in September ’98 before another significant drop to even lower levels. Finally, beneficial owner Blum Capital Partners purchased 20,000 shares at $21.50.

It is rare to see insiders acquire shares of a stock that has been moving higher, and it is almost always a sure sign that more upside is coming. Further, that these insiders have not been shy about talking profits in the past, and have done so opportunistically, is an indication that their activity is mostly investment-motivated. First Health Group provides Preferred Provider Organization, clinical cost management, fee schedule and other cost management services.

COPYRIGHT 1999 American Banker-Bond Buyer

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