Gentiva Issues 2011 Outlook - Analyst Blog

Gentiva Health Services, Inc. (GTIV) has provided its financial guidance for fiscal 2011, while it has unchanged the outlook for fiscal 2010.

For fiscal 2010, Gentiva reiterates its outlook for revenues in the range of $1.42 billion−$1.45 billion and adjusted income from continuing operations − excluding the costs of restructuring, legal settlements and acquisition and integration activities, the results of discontinued operations and the impact of any future acquisitions − to be in the range of $2.75−$2.80 per share for fiscal 2010. The results include the impact of the closing of Odyssey HealthCare, Inc., acquired in August 2010.

For fiscal 2011, Gentiva expects net revenues to fall in the range of $1.90 billion - $1.95 billion, while adjusted income from continuing operations is expected to come in the range of $2.70-$2.80 per share.

However, Gentiva's earnings outlook for fiscal 2011 includes the impact of its Odyssey acquisition and the negative impact from the final rules of the Medicare home health reimbursement rates for fiscal 2011.

On November 2, the Centers for Medicare & Medicaid Services (CMS) issued the rules of the Medicare home health reimbursement rates, and announced a 2% market basket update to Medicare's CY10 home health prospective payment system (HH PPS) rates and modifications to the home health outlier policy.

The changes are designed to ensure appropriate payments, prevent fraud and abuse and protect beneficiaries under the Medicare home health program. However, Gentiva foresees its profits to be negatively affected by the reimbursement rate cuts, as home health agencies (HHA) receive additional payments for 60-day home care that carry unusually high costs.

According to the guidelines issued, CMS will cap these additional payments in CY10 at 10% per HHA and target total aggregate payments at 2.5% of all HH PPS payments.

Nevertheless, Gentiva's diversified product portfolio is impressive and its history of generating significant leverage on acquisitions and modestly strong fundamentals inspire our optimism about the stock.

In addition, the health care providing industry is consolidating through a flood of mergers and acquisitions. Apart from the acquisition of Odyssey, Gentiva also acquired the assets of United Home Care Group, a Medicare certified home health services business, in May to expand its presence in Louisiana, particularly after the reimbursement rate cuts that are being introduced under the health care reforms.

The acquisition of Odyssey has made Gentiva a leading hospice care provider in the U.S. Gentiva now projects a collective average daily patient census of approximately 14,000 by expanding its operations in about 30 states. Gentiva expects to bring its innovative specialty home health programs and other services to patients by broadening its scope of operations.