Why Kindred Healthcare Shares Are Soaring Today

By Markets Fool.com

SOURCE: KINDRED HEALTHCARE

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What: After reporting fourth quarter financials, shares in Kindred Healthcare were sky-rocketing 19.8% at 1:00 p.m. EST Friday.

So what: The provider of hospital, nursing, rehabilitation, and long-term care reported sales and earnings per share of $1.78 billion and $0.44, respectively, in the fourth quarter. Management also reported that full year sales and EPS totaled $7.1 billion and $1.70, respectively, for the full year.

SOURCE: KINDRED HEALTHCARE

The top line full year results were in line with the $7.1 billion forecast issued by the company last fall and EPS was at the high end of $1.55 to $1.70 guidance.

Overall, sales grew 40.8% year over year in 2015 and adjusted EPS improved by 12.5%, mostly due to the acquisition of Gentiva Health and Centerre Healthcare Corporation.

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Now what: Strengthening tailwinds tied to rehabilitation and long-term care demand from aging Americans remains the biggest reason to consider owning Kindred Healthcare shares, but tailwinds are slightly offset by lackluster performance at the company's hospital segment and regulatory reimbursement hurdles.

Revenue in the home division increased 4.8%, rehab sales grew 4.8%, and revenue in the nursing center segment inched up 0.6% versus last year, but same-hospital revenue slipped 3.3% from the year before because of a drop in admissions.

For this year, management expects similar single digit growth in sales to between $7.2 billion and $7.3 billion, but adjusted EPS is expected to drop to about $1.25 as the company transitions to long-term acute care criteria that will result in a drop in reimbursement rates for some patients.

The reimbursement drag on EPS could be somewhat offset by cost savings associated with its previous merger and acquisition activity and management says that expense reductions are running ahead of pre-deal expectations. If that continues, then Kindred Healthcare's cash flow should give it plenty of financial firepower to support its healthy 5.33% dividend yield and for that reason, long-term income investors might want to consider owning this company's shares.

The article Why Kindred Healthcare Shares Are Soaring Today originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.