On May 28, 2013, we downgraded
Gentiva Health Services Inc.
) to Underperform from Neutral based on its weak first-quarter
earnings on the back of consistently declining revenues along
with uncertain regulatory environment and legal problems. Gentiva
carries a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Following Gentiva's weak first-quarter earnings, analysts have
been revising their estimates downward. On May 9, 2013, the
company reported first-quarter 2013 net operating earnings of 23
cents per share, which lagged the Zacks Consensus Estimate of 31
cents as well as the year-ago quarter level of 24 cents per
Five of six estimates moved south in the last 30 days,
dragging the Zacks Consensus Estimate for 2013 by 9.8% to 92
cents. For 2014, the Zacks Consensus Estimate moved down by 9.4%
to $1.06 as all 5 estimates were nudged downward over the same
Cause for Concern
Saleand disposal of branches along with rate cuts have
adversely affected Gentiva's revenues in the last few quarters.
As a result, despite acquisitions, net revenue declined to $1.71
billion in 2012 from $1.80 billion in 2011. Both Home Health and
Hospice revenues of Gentiva declined, contributing to the 4.8%
decline in net revenue.
Even in the first quarter of 2013, Gentiva witnessed a 5%
year-over-year decline in net revenue to $415.6 million. The
year-over-year decline was largely due to a significant cut in
the Home Health Medicare rates along with the impact of
sequestration, and the sale and closure of some branches.
Moreover, the changes proposed by the Centers for Medicare
& Medicaid Services (CMS) for Medicare Home Health
Prospective Payment System payments reduced Medicare
reimbursements by 1% for 2013. This in turn reduced Gentiva's
earnings, which are significantly reliant on Medicare
Healthcare Stocks to Consider
While we prefer to avoid Gentiva until we see signs of
improvement in the company's performance, other healthcare
companies worth considering are
Molina Healthcare Inc.
Addus HomeCare Corp
). Both these companies carry a Zacks Rank #1 (Strong Buy).
ADDUS HOMECARE (ADUS): Free Stock Analysis
GENTIVA HEALTH (GTIV): Free Stock Analysis
HEALTHSOUTH CP (HLS): Free Stock Analysis
MOLINA HLTHCR (MOH): Free Stock Analysis
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