Expanding its presence in Louisiana, on Monday, Gentiva Health Services Inc. (GTIV) announced that it has completed the acquisition of the assets of United Home Care Group, a Medicare certified home health services business. Although existing cash reserves have been utilized to fund the acquisition, the other terms of the deal remain undisclosed.
United Home has been operating in the state of Louisiana for 20 years, through six offices, covering about 25 administrative subdivisions in Louisiana (that corresponds to a county in other U.S. states). Including the existing parishes previously covered, Gentiva will now be able to provide home health services to approximately 85% of the state, thereby significantly broadening its customer base in Louisiana. Through the acquisition of United Home, Gentiva expects to introduce its strategy to bring its innovative specialty home health programs and other Gentiva services to patients in these markets.
Gentiva’s first quarter earnings of 65 cents per share surpassed the Zacks Consensus Estimate by 5 cents, driven by higher volumes and revenue from its home health and hospice operations.
Estimate Trend Revision
Over the last 30 days, 3 of 10 analysts covering the stock have increased their estimates for the second quarter of 2010, while a couple of downward revisions were witnessed. Currently, the Zacks Consensus Estimate for the second quarter is operating earnings of 69 cents per share, which would be up by 16.4% from the year-ago quarter.
The higher number of upward estimate revisions for the second quarter indicates a likelihood of upward trend in the performance of the stock in the near term.
With respect to earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 15.0%. This implies that Gentiva has surpassed the Zacks Consensus Estimate by 15.0% over that period.
The downside potential for the estimate in the second quarter, essentially a proxy for future earnings surprises, currently stands at 1.2%.
Overall, the latest deal is projected to have a neutral impact on Gentiva’s earnings in 2010 but further on, it is expected to be accretive to earnings. However, Gentiva’s diversified product portfolio pleases us and we believe the company’s inorganic growth performance has been exceptional. Hence, Gentiva’s history of generating significant leverage helps us gain optimism with regard to the United Home acquisition as well.
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