1. National HealthCare Corporation (NHC)
Marnie Georges
Daniel Kleeman
Jason Mudrock
May 1, 2014

2. Agenda Screening process Company overview Recent financial performance
Macroeconomic and industry overview
Management focus
Financial analysis
Financial projections
Valuation
Recommendation

3. Our screening process Major US Exchanges United States and Canada
Primary industry classification is not a financial company
P/BV between 0.5 and 1.5
Market Cap between $80MM and $800MM
Analysts < 3
Revenue growth since last
year > 3%
Net Income Margin > 3%
LTM P/E < 16
Utilizing CapitalIQ for the entire process

4. Business overview NHC Skilled Nursing Centers Net Patient Revenues
Assisted Living
Independent Living
Rehabilitation
Pharmacy
HomeCare
Hospice
Accounting & Financial Services
Net Patient Revenues
Skilled Nursing Facilities
Rehabilitative Services
Medical Specialty Units
Managed Care Contracts
Assisted Living Centers
Independent Living Centers
Homecare Programs
Pharmacy
Operations
Other Revenues
Insurance Services
Rental Income
Management, Accounting, and Financial Services
Source: k.

5. Business capabilities13 3 78 2 31 10 4
Manage 69 skilled nursing facilities with a total of 8,943 licensed beds
Manages 7 centers for others
Leases 35 centers from National Health Investors
Originally spun off from NHC
Source: k.

6. Market power analysis Strengths Weaknesses Opportunities Threats
Strong profitability
Ability to renew leased facilities
All managed centers are Medicare certified
Weaknesses
Dependence on Medicare and Medicaid
Excess capacity
Opportunities
Aging population
Increasing insurance coverage
Threats
Heavy industry regulation
Wrongful death lawsuits
Source: k.

7. Recent financial performance
Solid yearly growth overall
Year-to-year variability from business risks
2013 benefitted from opening new facilities
Several still under construction
Profitability can vary with risk reserves
Sources: k, k, k, k.

8. Stock market performance
Sources: Yahoo! Finance.

9. Industry drivers Aging Population
Federal Funding for Medicaid & Medicare
Increased Private Insurance Ownership
5.9% CAGR
Sources: 1. “Number of adults aged 65 and older.“ IBISWorld Business Environment Profiles. IBISWorld. Jan
2. “Federal funding for Medicare and Medicaid.“ IBISWorld Business Environment Profiles. IBISWorld. Jan
3.. “Number of people with private health insurance.“ IBISWorld Business Environment Profiles. IBISWorld. Jan

10. Porter’s Five Forces HIGH MEDIUM LOW HIGH LOW
Bargaining Power of Buyers
Numerous competitors and alternatives available to buyers
Alternatives to skilled nursing
Consumer choice limited by insurance plans
Bargaining Power of Suppliers
Dominant medical suppliers serve all competitors
Schools with top nursing talent attract multiple industry players
May customize facilities and use multiple vendors for common goods/services
Entry of New Competitors
High barriers include specified skills, capital expenditures, and government regulations
Necessary payor relationships deter entrants
Rivalry Among Existing Competitors
Numerous players competing in growing industry for limited payout funds
Branding becomes important due to sensitive nature of services performed
Threat of Substitutes
Low use of alternative medicines and healing
Skilled care is difficult to replicate
HIGH
MEDIUM
LOW
HIGH
LOW
Sources: 1. Diment, Dmitry. “Nursing Care Facilities in the US.” IBISWorld Industry Report. IBISWorld. Feb
2. Diment, Dmitry. “Elderly & Disabled Services in the US.” IBISWorld Industry Report. IBISWorld. Feb
3. Phillips, Jocelyn. “Specialty Hospitals in the US.” IBISWorld Industry Report. IBISWorld. Feb

11. Health insurance overview
Private Insurance
Affordable Care Act
Medicare & Medicaid
Sources: 1. “HMOs.” Illinois Department of Insurance. Jun
2. “Preferred Provider Organization (PPO) Plans.” Medicare.gov.
3. About the Law.” HHS.gov/HealthCare. U.S. Department of Health & Human Services.
Sources: 1. “HMOs.” Illinois Department of Insurance. Jun
2. “Preferred Provider Organization (PPO) Plans.” Medicare.gov.
3. About the Law.” HHS.gov/HealthCare. U.S. Department of Health & Human Services.

12. Management focus Improve occupancy rates with existing facilities
Diversify revenue streams to include more private payors
Open facilities currently under construction in a timely manner
Source: k.

13. Financial analysis

14. Financial analysis

15. Discount rate

16. Projections

17. Comparable valuation
Source: Yahoo! Finance.

18. Projections

19. DCF

20. DCF

21. Price Weighting

22. Performance relative to comps
Source: Yahoo! Finance.

23. Buy Recommendation Market Price - $54.73 as of 4/30 market close
Buy 100 shares with a limit 54.50
$5,450 position size
Limit order will be good until cancelled