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 rehab specialist and hospital operator Rehabcare Group (NYSE: RHB) dove nearly 12% in intraday trading as investors reacted to the company's third-quarter earnings report.
So what: Rehabcare, which competes with larger players such as HealthSouth (NYSE: HLS) and Select Medical (NYSE: SEM), showed some pretty decent numbers for the third quarter. Overall, the company's revenue and earnings soared 65% and 131%, respectively, from last year, though, most of that gain was from the acquisition of Triumph HealthCare. Excluding Triumph, revenue was up 11%. Total earnings per share of $0.64 met the average Wall Street estimate.
Now what: While the current-quarter results don't sound all that bad, the sharp reaction of investors today is likely because of the company's fourth-quarter guidance. Rehabcare doesn't provide an earnings-per-share number for analysts to back their models into, but instead gives guidance for various metrics in each of its businesses -- and none of those metrics looks particularly promising. The company expects margins will likely contract and that top-line growth may be nonexistent. Analysts' may now update their estimates based on the company's guidance, but based on current 2010 estimates, Rehabcare's stock is trading at a price-to-earnings multiple of less than nine. While the fourth quarter may not be stellar, that price tag could make this stock worth a closer look.
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