FBR Capital Launching Coverage of Post–Acute Care Services: How About a Bowl of Alphabet Soup?

September 23, 2010 7:26 AM EDT
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Price: $43.98 --0%

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FBR Capital Launching Coverage of Post–Acute Care Services: How About a Bowl of Alphabet Soup?

FBR analyst says, "We initiated coverage of four companies in the post–acute care sector of the healthcare services industry. Three of those companies (Amedisys Inc. (Nasdaq: AMED), Gentiva Health Services (Nasdaq: GTIV), and LHC Group, Inc. (Nasdaq: LHCG)) are home health/hospice operators, while the fourth (Kindred Healthcare, Inc. (NYSE: KND)) operates skilled nursing facilities (SNFs), long-term acute care hospitals (LTACHs), and rehabilitation services. Our fundamental thesis on the subsector is that volume trends remain strong through most of the post–acute care service areas, but Medicare pricing has become more challenging. Medicare, the most important payer, has steadily increased its spending in the post–acute care space as more eligible patients enter coverage each day. As a result, Medicare has adjusted its pricing structure for some post–acute care services, sometimes with sizable reimbursement cuts. The post–acute care sector’s intricacies can be somewhat daunting, but if investors can become comfortable with the regulatory environment and pricing trends, then they can pay attention to the volume dynamic. Although we look at this space as highly volatile, with that volatility comes opportunity. At this time, however, we are choosing not to recommend any of the above four stocks."

AMED started with a 'Market Perform' rating and $29 price target. GTIV started with an Underperform rating and $21 price target. KND at 'Market Perform' and $13 PT and LHCG at 'Market Perform' and $24.

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