Gentiva Upgraded to Neutral - Analyst Blog

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We have upgraded our recommendation on Gentiva Health Services Inc. ( GTIV )  to 'Neutral' on the back of a strong revenue growth trend, leading market position, elimination of lower margin business and growth from specialty programs. However, the optimism was curbed by the weak cash position and rising expenses.

Gentiva reported its third-quarter operating earnings of $8.3 million or 27 cents per share, lagging behind the Zacks Consensus Estimate of 48 cents. The income also compares negatively with $21.6 million or 71 cents earned in the year-ago quarter.

Gentiva's earning ability has remained strong over the years with its net revenue increasing through the years. Moreover, the purchase of Odyssey has made it the leading hospice care provider in the U.S., as the home health and hospice care operations of both the companies fairly complement each other without geographically overlapping operations. The acquisition is expected to generate operating cost synergy of about $25 million per year.

Additionally, Gentiva is implementing a two-pronged strategy to increase the flexibility of its financial covenants over the next few years in an effort to better reflect the changed reimbursement environment. As the initial part of the strategy, the company announced an amendment to its senior secured credit agreement in November 2011. Moreover, Gentiva has been strategically selling off its non-core businesses to reduce costs and focus its resources on its core business.

However, the changes proposed by the CMS in October 2011, for Medicare home health payments will reduce Medicare reimbursements by 2.31%, consequently reducing Gentiva's earnings, which are significantly reliant on Medicare earnings. Management expects the final CMS rule to negatively impact Gentiva's 2012 earnings by $30-35 million.

Gentiva is also loosing the confidence of the rating agencies. In November 2011, Standard & Poor's (S&P) downgraded the company's corporate credit rating for the second time in four months. Besides, in September 2011, Moody's Investor Services also downgraded Gentiva's Corporate Family Rating. Additionally, both S&P and Moody's indicated the possibility of a further rating downgrade in the near future.

The Zacks Consensus Estimate of earnings for the fourth quarter of 2011 is currently 30 cents per share, down by a substantial 57% year over year. For 2011 and 2012, Gentiva's earnings are expected to be $1.65 and $1.01 per share, respectively.The company is a leading national provider of comprehensive home health services and competes with organizations like Amedisys Inc. ( AMED ) and Lincare Holdings Inc. ( LNCR ).

Gentiva currently carries a Zacks #3 Rank, implying a short-term 'Hold' rating.

AMEDISYS INC ( AMED ): Free Stock Analysis Report
GENTIVA HEALTH ( GTIV ): Free Stock Analysis Report
LINCARE HLDGS ( LNCR ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: AMED , GTIV , LNCR

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