UPDATE: UBS Downgrades Skilled Healthcare Group (SKH) to Sell

UBS downgraded Skilled Healthcare Group (NYSE: SKH) from Neutral to Sell with a price target of $7.25 (from $7.50). Analyst Brandon Fazio sees limited upside.

"SKH recently published its proxy filing relating to its pending reverse merger with Genesis Health. After reviewing the proxy, we believe the shares are overvalued and we move our rating from Neutral to Sell. At $8.74, the shares trade at ~7.8x 2015 PF EBITDAR, which is an 8% premium to KND. The premium to KND seems unwarranted given the GEN/SKH newco is expected to post bottom-line losses for the foreseeable future, will be highly leveraged, may need to step up its CAPEX spending to support its growth objectives, and will have a modest share float," said Fazio.

"The merger of privately-held Genesis Health and SKH is expected to close in 1Q15, with Genesis management leading the combined entity. Once the deal is completed, the shares will trade on the NYSE under the ticker GEN. Management has targeted $25 mln in synergies from the deal, which we include in our pro-forma estimates. While the synergy target could prove conservative, our forecast assumes a stable Medicare payment environment, which is uncertain. Further, core SNF earnings are likely to continue to be challenged by the ongoing secular growth of Medicare managed care," he added.

For an analyst ratings summary and ratings history on Skilled Healthcare Group click here. For more ratings news on Skilled Healthcare Group click here.

Shares of Skilled Healthcare Group closed at $8.74 yesterday.

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