This stock is sure to get your value senses tingling as it appears to be quite undervalued. How does a stock that is registering sales growth in the 20% area while trading below a market multiple and below book value sound? It sounds pretty good to me and the name of the company is Kindred Healthcare (KND).
According to Yahoo! Finance, the company operates as a healthcare services company in the United States. It operates in three divisions: Hospital, Health Services, and Rehabilitation. As of December 31, 2010, the company operated 89 long-term acute care hospitals with 6,887 licensed beds in 24 states; and 226 nursing and rehabilitation centers, and 7 assisted living facilities with 27,905 licensed beds in 28 states.
Key Merger
In early-June, Kindred closed on the acquisition of RehabCare Group, which was a key competitor. Paul J. Diaz, President and Chief Executive Officer of Kindred, commented, “We believe the Merger will be highly accretive to earnings for Kindred stockholders, provide significant long-term strategic benefits and enhance our future growth prospects.†This is always reassuring to hear from the CEO. He went on to say that he expects synergies of up to $40 million within two years.
Kindred’s reported earnings have been spectacular. It has averaged a positive surpise of 22.1% over the past four quarters. Additionally, this year’s earnings estimates have risen eight cents to $2.01 per share over the past month. This would put the stock at about 10.5x current-year estimates, which is an attractive valuation. As I mentioned earlier, the stock is trading below book value at 0.81x.
The stock has increased almost 75% over the past year, but I think it has more upside ahead of it. I think $25 by the end of the year and $30 in the next 12 months is certainly doable, especially if the merger works out as planned. In any event, there is no doubt this stock represents excellent value at these levels.
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