Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Gentiva Health Services (NASDAQ:GTIV), a U.S. provider of home health and hospice care services, tumbled as much as 14% after the company reported weaker than expected fourth-quarter earnings.
So what: For the quarter, Gentiva reported a 14% increase in net revenue to $486.1 million as home health revenue rose 8% and hospice revenue declined modestly. A goodwill and impairment charge related to its October purchase of Harden Healthcare, though, resulted in a whopper of a quarterly loss: $401.9 million, or $11.46 per share. Backing out this charge, Gentiva lost an adjusted $0.14 per share, compared to a profit of $0.31 per share in the year-ago quarter. By comparison, Wall Street had been looking for roughly $504 million in revenue and a $0.29 per share profit! Gentiva attributed the shortfall to the corporate restructuring initiative announced during the quarter that resulted in the closing of 46 home-health branches and consolidation of an additional 31 sites as part of the Harden acquisition.
Now what: On one hand, home health and hospice care makes sense on paper as a business likely to see surging demand in the coming decades. With baby boomers just starting to retire the need for home health services is expected to soar, which would play right into Gentiva's hands. Also, at just nine times forward earnings it's not as if investors are paying too hefty a premium to get in on the company. On the other hand, Gentiva is looking toward an environment in which Medicare reimbursements are likely to keep falling as the U.S. government tries to reduce its health care expenditures as much as possible in accordance with Obamacare. I would suggest today's drop could mark an intriguing buy point, but I would also say investors should keep their expectations tempered and understand this isn't the type of company that could present slow but steady longer-term growth opportunities.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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