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Updated Research Report on Gentiva

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We issued an updated research report on Gentiva Healthcare Services Inc. . Gentiva has been witnessing weak revenues over the last few years, the main reason being the sale and disposal of operations along with rate cuts. Although 2013 saw a slight improvement, it was far from being impressive.  

Earlier this month, Gentiva reported fourth-quarter 2013 earnings that lagged the Zacks Consensus Estimate as well as declined year over year. The top line also missed our expectations although it improved year over year.   

With respect to earnings trend, this Zacks Rank #5 (Underperform) healthcare services company delivered negative surprises in three out of the last four quarters, with an average negative surprise of 47.96%. Weak fourth-quarter earnings, lower volumes in hospitals and physician offices and regulatory pressure in the Hospice industry further mar the prospects of the company.

Moreover, the changes proposed by the Centers for Medicare & Medicaid Services (CMS) for Medicare Home Health Prospective Payment System reduced Medicare reimbursements by 1%, thereby adversely affecting Gentiva’s earnings, which are significantly reliant on Medicare earnings.

Gentiva is also involved in a number of legal hassles, which raises the likelihood of higher settlement charges, thereby increasing financial risks. Adverse litigation outcomes might also dampen the goodwill of the company, thereby, hurting the investor sentiment.

High legal and other costs along with poor operating results have adversely affected Gentiva’s operating cash flow as well, adding to financial risks. If operating cash flow declines further, Gentiva will be compelled to delay its planned capital expenditures and cut short its capital deployment plans going forward. With increased drug and selling, general and administrative (SG&A) expenses in 2014, going ahead, the company expects overall expenses to rise.  

Nevertheless, amid the negatives, Gentiva’s relentless efforts to expand its operating leverage through inorganic growth strategies and focus on specialty services are commendable. The Harden acquisition in Oct 2013 boosted the Home Health and Community Care businesses as per company expectations, while the Harden Hospice business remained stable. Revenues and adjusted EBITDA during the fourth quarter were favored by the Harden Healthcare takeover, which positions Gentiva to achieve its 2014 revenue goal of $1.9–$2.1 billion. Divestitures of non-core businesses and low-return branches have also helped the company to enhance core operations and boost cash balance.

Other Stocks to Consider

Aetna Inc. (AET - Free Report) , Chemed Corp. (CHE - Free Report) and China Cord Blood Corporation are some better-ranked stocks in the healthcare services space. While Chemed sports a Zacks Rank #1 (Strong Buy), Aetna and China Cord carry a Zacks Rank #2 (Buy).

In-Depth Zacks Research for the Tickers Above

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Aetna Inc. (AET) - free report >>

Chemed Corporation (CHE) - free report >>

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