Morgan Keegan Raises RHB Estimates Upon KND Acquisition

RehabCare Group RHB reported fourth quarter EPS of $0.66 ($0.69 including a hospital sold on January 1), “well ahead of our $0.59 estimate,” Morgan Keegan reports. “Revenues of $339 million beat our $336 million estimate,” Morgan Keegan writes. “The 13.0% EBITDA margin topped our estimate by 76 bp. The 15.2% Hospital EBITDA margin was up 222 bp sequentially and beat our estimate by 112 bp. The HRS EBITDA margin of 21.9% was the best in seven years and up 196 bp sequentially. SRS margins declined, as expected, due to the transition to new Medicare regulations. “Kindred Healthcare KND is acquiring RehabCare for $26 and 0.471 Kindred shares. At yesterday's close, this values RehabCare at $37.775. “We are raising our 2011 EPS estimate from $2.69 to $2.78 and our 2012 estimate from $3.05 to $3.21 and withdrawing our investment rating. While we don't follow Kindred, our view of the nursing home operators in our coverage is favorable due to the favorable impact of the RUG-IV Medicare payment system.” RehabCare Group closed Tuesday at $37.05; Kindred Healthcare closed at $25.