Analysts reckon National Medical could handle major acquisitions.

National Medical Enterprises Inc., reportedly in acquisition talks with two larger hospital chains with combined revenue of nearly $7 billion a year, is not over-reaching its ambitions to cobble together a major hospital chain, according to securities analysts.

"This is something that is doable, without NME diluting its earnings so badly so as not to make sense," said Barat Pandya, senior health care securities analyst with Kemper Securities Corp. in Chicago.

Ken Frankel, an analyst with Drake Securities in Los Angeles, was less sanguine: "You could say a deal might lower NME's valuation a bit, but they could also argue that, in order to survive, they must get much larger."

On the face of it, Santa Monica-based NME appears to have its work cut out for itself: its two reported acquisition targets, Nashville, Tenn.-based HealthTrust Inc. and Dallas-based American Medical Holdings, have a combined market capitalization of $4.3 billion. NME would have to pony up at least that amount in stock should it engineer an equity swap deal, a common transaction involving companies of this size.

Currently, NME has 166.9 million shares outstanding, according to spokeswoman Diana Takvam. It has the authority to issue 283.1 million more shares -- to its limit of 450 million.

Thus, without buying back any outstanding shares, NME has on tap about $4.8 billion in stock swap equity, based on its recent trading price of $17 a share.

Pandya noted NME does not have a lot of debt, while HealthTrust and American Medical Holdings have a moderately heavy load of slightly more than $2.2 billion, combined. That would cut into the premium over market equity NME would have to pay to acquire the two companies. Pandya suggests a final price tag would be between $4.5 billion and $5 billion -- a maximum premium of about 17 percent.

"I would think NME could really issue as much as 200 million shares, and issue long-term debt of $100 million, and still come out as a combined entity that could earn as much as $1 a share (on an annualized basis)," Pandya said.

NME posted fully diluted earnings of 36 cents a share during its fiscal first quarter, which ended Aug. 31. It had net income of $64 million on revenue of $662.8 million. That compares to net income of $52.7 million on revenue of $771.5 million a year earlier -- earnings of 30 cents a share prior to one-time accounting charges.

Should NME acquire HealthTrust and American Medical Holdings, its annual revenue would approach $10 billion a year, and U.S. hospitals it operates would balloon from 33 to 188. That would make it the nation's second-largest hospital chain, behind Louisville, Ky.-based Columbia/HCA Inc.

Jeffrey Barbakow, NME's chairman and CEO, would not comment on specific deals, but noted during his speech at last Wednesday's standing-room-only annual shareholders meeting that a large-scale transaction likely is the wisest course.

"We have concluded that a preferable strategy is ... to enter into larger transactions with multi-facility providers," he said. "NME has the financial capability to complete such transactions. However, we will only pursue this course when the transactions are advantageous to our company and do not dilute shareholder value."

In a session later with reporters, Barbakow sounded less cautious. He was quick to note that NME had the financial wherewithal to consummate a large deal.

"We have the balance sheet to do just about anything we need to do if we are an acquirer," Barbakow said. "We have an ability to raise money, an ability to issue new shares."