Skilled Healthcare Upgraded To Buy

Skilled Healthcare Group SKH is being upgraded from Hold to Buy by Citigroup as a result of the company obtaining a CA verdict supporting them and consecutive quarters of exceeded expectations. In the report, Citigroup writes "SKH raised '10 revenue, EBITDA and EPS (+5c to 92- 97c) guidance. 4Q10 implied EBITDA guidance is $28.8-32.8 vs cons $29.3. 4Q10 implied EPS guidance is 19-24c vs current cons 22c. This is good signaling one month into RUGsIV implementation. Including incremental interest expense and compliance and monitoring costs associated with the CA legal settlement, we are raising 2010/11/12 EPS from 86/75/87c to 94/94/$1.04. With the CA legal settlement completed, we are lowering our risk rating from Speculative to High. Our estimate changes and the process of rolling our forward target P/E onto 2012 lifts our relative value 12month price target from $5 to $7 (see table herein), using a 2012 target P/E of 7.0x (implied '12 target EV/EBITDAR 6.3x)." Citigroup has also raised the price target from $5 to $7 on Skilled Healthcare, which closed yesterday at $3.93.