HealthSouth (HLS) is the nation's largest provider of inpatient rehabilitation services with inpatient facilities located in 26 states. On an adjusted basis, excluding nonrecurring items (accelerated depreciation and professional fees), HLS reported 1Q08 EPS of $0.15, compared with consensus EPS forecasts of $0.11.
A highlight of its results was a 7.7% year-over-year [y/y] increase inpatient hospital revenue, due primarily to an increase in Medicare reimbursement and a 2.7% y/y increase in discharges. Cash flow from operations was solid at $41M, buoyed by lower G&A expenses y/y. We are encouraged by the progress of current operational initiatives and maintain our Hold recommendation at current levels.
As of March 31, 2008, HLS operated 94 inpatient rehabilitation hospitals (including 3 hospitals which the company accounts for using the equity method of accounting), 6 freestanding long-term acute care hospitals [LTCHs], 60 outpatient satellites located within or near (and operated by) company-owned hospitals, and 25 home health agencies. In addition to HLS hospitals, the company manages 11 inpatient rehabilitation units, 3 outpatient satellites, and one gamma knife radiosurgery center through management contracts.
We have valued HLS on an EV/EBITDA basis, as well as a comparison to similar firms in the specialty services sub-sector of healthcare. Our $19.50 price target is derived using a projected FY08 adjusted EBITDA of $320M and EV/EBITDA multiple of 11x.
Read the full analyst report on HLS.
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