I purchased KND at the opening yesterday. Kindred Healthcare, Inc. operates hospitals, nursing centers, institutional pharmacies, and a contract rehabilitation services business in the United States. The company popped up on a WSJ screen for companies with low P/S, P/E, and P/CF ratios. They are growing their pharmacy and hospital business and recently made an acquisition that will be accretive next year. They also have a strong balance sheet and have paid off 400 million in debt in the last four years.
The negatives are 2006 reimbursement issues with the government (something I have been wary of in the past) and an undetermined lease increase on 39 of their hospitals that will most likely end up in arbitration. Also, there have been increases in labor costs. Below is a recent Sept. update by Smith Barney commenting on their most recent pharmacy acquisition
Kindred Healthcare (KND)
Citigroup Investment Research
KND: FLASH: Another institutional pharmacy
acquisition; Reiterate Buy
BUY (1)
High Risk (H)
Mkt Cap: $1,358 mil.
SUMMARY
* Last night, KND announced another
institutional pharmacy acquisition. We view
this as a positive because it increases
KND's exposure to the segment ahead of the
pending part D reimbursement change and it
further diversifies their business mix.
* The company states that the acquired
business generates $45 million in revs. If
one assumes that it had comparable pre corporate EBITDA margins of 12%, we
estimate this acq may contribute $0.06 to
$0.08 to annual EPS.
* We continue to view KND as the most
compelling valuation in our group with a
2005E EBITDA multiple of 5.6 times. Though the company missed the last qtr due to weaker LTACH admissions, we believe that the contributing factors do not reflect a long-term systemic problem for the company.
At this valuation, we believe that the
historical uncertainties and the unknown
surrounding a potential rent reset for July 2006 are more than discounted in the stock. |
