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Gentiva's 2013 Guidance Disappoints

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Recently, Gentiva Health Services Inc. released it financial guidance for 2013. The company expects adjusted income from continuing operations between 90 cents and $1.10 per share, substantially lower than the Zacks Consensus Estimate of $1.29. However, we expect a downward revision in the Zacks Consensus Estimate once analysts start revising their estimates to account for the company guidance.

The guidance is significantly below Gentiva’s 2012 adjusted income from continuing operations of $1.23 per share. The 2013 earning per share guidance is calculated on the basis of 31 million outstanding shares.

Meanwhile, Gentiva’s net revenue guidance for 2013 stands at $1.69–$1.73 billion. This guidance includes a negative impact of $21 million from the sale and closure of branches in 2012.

Both the above-mentioned guidance include the impact of sequestration and changes in Medicare rates, leading to a $30 million reduction in net revenues and 60 cents per share in adjusted income from continuing operations. Gentiva has calculated the amount using the assumption that the sequestration will affect the reimbursement rates of only those Medicare beneficiaries whose service date does not end by Mar 31, 2013.

However, both the guidance excludes the impact of potential acquisitions, credit agreement amendments or changes in reimbursement rate. The adjusted income from continuing operations guidance excludes expenses related to acquisitions, restructuring, integration activities, legal settlements and other special charges.

Further, Gentiva expects free cash flow in the range of $40–$50 million in 2013. Free cash flow is the amount remaining after reducing capital expenditures from net cash flow from operating activities.

Gentiva’s free cash flow is expected to be low in the first quarter and increase as the year goes by, due to the impact of seasonality and debt prepayment. The company has no debt repayment scheduled in 2013 as it prepaid the $25 million due in February.

Gentiva expects to achieve a mid-single digit growth rate in its home health division in 2013. The company also aims to bring consistency to the growth in the hospice segment.

Gentiva currently carries a Zacks Rank #3 (Hold). Other healthcare companies worth considering are Addus HomeCare Corporation (ADUS - Free Report) – Zacks Rank #1 (Strong Buy), LCA-Vision Inc. – Zacks Rank #2 (Buy) and Coventry Health Care Inc. – Zacks Rank #2 (Buy).

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