We are reiterating our Neutral recommendation on
Gentiva Health Services Inc.
). Its leading market position, elimination of low-margin business
and reduced debt balance are the positive investment
considerations. However, the declines in bottom line, cash balance,
total assets and operating cash flows are the downsides.
Gentiva reported first-quarter 2012 adjusted earnings (from
continuing operations) of 27 cents per share, at par with the Zacks
Consensus Estimate, but lower than the year-ago quarter adjusted
earnings of 57 cents. Adjusted net income of $9.1 million also
compares unfavorably with $19.1 million in the year-ago
Gentiva, a leading national provider of comprehensive home
health services, competes with organizations like
Lincare Holdings Inc.
). With steady improvement in its net revenue, the company's
earnings ability has remained strong over the years.
Gentiva's revenue witnessed a year-over-year fall during
first-quarter 2012, mainly hurt by the sale and closure of some
branches coupled with a marginal decline in the Home Health
Episodic segment revenue. However, robust performance in the
Hospice segment led to a 27% and 25.5% increase in revenues in 2011
and 2010, respectively.
Moreover, Gentiva has been strategically selling off its
non-core businesses to reduce costs and focus its resources on its
core business. Further, the company amended its senior secured
credit agreement in March 2012 to increase the flexibility of its
financial covenants over the next few years. The amendment has
various positive factors such as alteration in the definition of
consolidated EBITDA, increase in the maximum limit for the
consolidated leverage ratio and relaxation of the minimum interest
coverage ratio requirement.
However, the agreement increased the interest rate on term
loans, thereby substantially increasing Gentiva's interest
expenses. The interest rate hike also resulted in a substantial
decline in the earnings outlook for 2012. Moreover, rising
corporate expenses, interest expenses and selling, general and
administrative expenses led to a decline in net income over the
past few years.
Moreover, despite the fact that the company still has a sizeable
cash balance, rising expenses have weakened Gentiva's operating
cash flow over the past few years. Operating cash flow declined to
$5.14 million in 2011 from $142.6 million in 2010, while the cash
outflow in the first quarter of 2012 was substantially higher than
the year-ago quarter.
Gentiva currently carries a Zacks #2 Rank, which translates into
a short-term Buy rating.
GENTIVA HEALTH (GTIV): Free Stock Analysis
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