Revised: Brian Kennedy, then a stock analyst at Jefferies & Co., made a prescient call when he urged clients, in a report April 24, to sell shares of CardioNet Inc., Conshohocken, because it was likely to face declining Medicare payments for its heart monitors. He based the call on his own research in the health-insurance business, including information he said came from Pittsburgh insurer Highmark Medicare Services.
Kennedy's call challenged one of the few companies that seemed to be prospering in the face of the national recession. At the time, CardioNet had been hiring salesmen, projecting higher sales and profits, and trading above its March 2008 initial offering price of $18, under the leadership of ceo Randy Thurman, an ex-Rhone-Poulenc-Rorer executive.
At first, Kennedy's report depressed the stock. But CardioNet's Thurman quickly denied the report was based on anything Highmark would have told Kennedy. Jefferies, to its credit, stuck by Kennedy and his "sell" recommendation.
Instead of digging deeper, analysts at Citigroup, Boenning & Scattergood and other firms took Thurman's and CardioNet's claims at face value, and kept recommending clients "buy" CardioNet. The stock even recovered a little, for a few weeks.
And then, on June 30, CardioNet announced Highmark's reimbursement payments really are falling, and would drive CardioNet income a lot lower than expected. That turned CardioNet from a profitable into a money-losing company, in need of what Boenning's analyst now calls "drastic change." Citi and other firms finally followed Kennedy in downgrading the stock. CardioNet fell below $10, and now trades around $5.
So what happened to the principals in this drama? CEO Thurman, who was wrong, has so far kept his job. Analyst Kennedy, who was right, has resigned, feeling pressure from what he calls "a hostile environment" among his Wall Street peers, who scolded him for "rocking the boat," according to this Wall St. Journal story.
CardioNet spokesman Marty Galvan, who's gotten tight-lipped since the company's been in trouble, hasn't returned my calls. Jefferies spokesman Tom Tarrant noted the firm had stood by Kennedy and continued to rate CardioNet a "sell". He said he couldn't comment on Kennedy's reasons for leaving.
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