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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