With the baby boomers aging, post-acute and long-term care demand is growing. Kindred Healthcare, Inc. (KND) has been growing through acquisition. This Zacks #1 Rank (strong buy) is expected to grow earnings by the double digits in both 2011 and 2012.
Kindred Healthcare provides healthcare services in 696 locations in 40 states including 89 long-term acute care hospitals and 226 nursing and rehabilitation centers.
It also operates Peoplefirst rehabilitation which provides services at 381 non-affiliated facilities.
Kindred To Acquire RehabCare Group
M&A is back. On Feb 8, Kindred announced the acquisition of RehabCare Group for $1.3 billion in cash and stock.
RehabCare Group operates 34 long-term acute care and rehabilitation hospitals and provides rehabilitation services in partnership with over 1250 hospitals and skilled nursing facilities in 42 states.
Combined, the company would be the largest post-acute and rehabilitation provider in the United States.
The deal is expected to be highly accretive to earnings immediately upon closing at the end of June.
California Expansion Plans
In addition to the huge RehabCare deal, the company has also been executing smaller acquisitions.
On Apr 4, it announced that its subsidiaries acquired 4 locations in Southern California and the San Jose market. Kindred already has operations near those being acquired, with 13 long-term acute care hospitals, 2 nursing and rehabilitation centers and 1 subacute unit nearby.
The acquisition will be funded with the company’s revolving credit facility. The 4 locations generated about $11 million in revenue in fiscal 2010.
Zacks Consensus Estimates for 2011 and 2012 Rise
Given the size of the RehabCare Group acquisition, the company has elected to suspend 2011 guidance until it is completed.
In the meantime, analysts have been adjusting estimates higher.
For 2011, the Zacks Consensus Estimate has risen by a penny to $1.65 in the last month. That is earnings growth of 12.1% over 2010.
Similar steady growth is expected in 2012, with the Zacks Consensus Estimate rising 7 cents to $1.87 per share in the prior 30 days for earnings growth of 13.4%.
10 Earnings Surprises in a Row
Kindred has put together quite a track record of surprising on the Zacks Consensus Estimate. On Feb 8, it surprised for the 10th consecutive time.
Earnings per share were 54 cents compared to the consensus of 10 cents for a beat of 22%.
Revenue rose 6% to $1.14 billion from $1.07 billion in the year ago quarter. Hospital revenue climbed 5% to $508 million due to recent acquisitions.
Kindred Is a Value Stock
Shares trade at 14.9x forward estimates, which is just under the 15x cut-off I use to gauge a “value” stock.
But it’s other value characteristics are still strong.
It has an excellent price-to-book ratio of just 0.9, which is well under the 3.0 cut-off. Its price-to-sales ratio of 0.2 also reflects strong value as a reading under 1.0 usually means its undervalued.
Kindred is scheduled to report first quarter results on May 10.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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