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What: Shares of home health care services provider LHC Group
So what: LHC Group reported revenue of $168.1 million and a profit of $0.63 for the fourth quarter, which compares to consensus estimates of $166 million in revenue and earnings of $0.66. An even greater drag than its $0.03 earnings miss was its forward earnings guidance that calls for earnings of $2.15 to $2.25 in fiscal 2011. Analyst expectations ranged from a low of $2.40 to as high as $2.83.
Now what: On paper, LHC Group appears fairly inexpensive, but I have serious concerns about its growth prospects. One of the main reasons cited for the 10% year-over-year decline in earnings was a 5% drop in Medicare reimbursements. If Medicare reimbursements continue to fall -- and I'm guessing they will considering the weaker-than-anticipated full-year guidance -- LHC Group will be forced to generate a lot of new admissions in order to make up for the shortfall. Health care services are a highly competitive space, and I'm not confident LHC would be able to grow admissions in double digits for much longer. Until LHC gets its costs under control, I would consider passing, even at these depressed levels.
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