Horizon Health Corp. (NASDAQ:HORC) is continuing its journey back to the future. The diversified health-care services company is shedding underperforming operations while building its core freestanding behavioral hospital business, the 24-year-old company's original focus.

Judging by Horizon's third-quarter results, announced after Monday's market close, its strategy is paying off. Its stock rose 1% to more than $24 in Tuesday's trading, now perched 148% higher than its 52-week low of $9.75. The Lewisville, Texas-based company's share price has also risen about $6 since its March 16 secondary offering of 1.7 million shares at $18.12 apiece (adjusted for the company's recent 2-for-1 stock split).

Horizon manages clinical services for acute-care hospitals and owns several behavioral health-care facilities. Its competition includes outfits such as Magellan Health Services (NASDAQ:MGLN) and RehabCare (NYSE:RHB).

Horizon's hospitals have driven the stock's recent strength; the company has filled hospital beds despite a decline in patients' average hospital stays. In the third quarter of fiscal 2005, the company recorded a 32% sequential rise in revenue from its three existing behavioral health hospitals. The gain was fueled by an 18% increase in average patient days, despite a 12.4% drop in the average length of stay. Meanwhile, revenue per patient day surged 12% from the second quarter to $644, an impressive 25% increase over the first quarter.

Overall, Horizon's third-quarter results beat analysts' earnings expectations of $0.23 per share by a penny and exceeded revenue estimates of $57.1 million by $800,000. The company now boasts about $30 million in cash with no debt.

Horizon's plans for that cash hoard include buying more hospitals, giving the company more chances to improve revenue from its acquisitions. Last quarter, the company said it had the infrastructure to handle up to 10 hospitals, including the recent closing of a fourth acquisition. In the meantime, Horizon has its nursing-staff business up for divestiture and is terminating its at-risk managed behavioral contracts operation. According to the company, this contract business, which delivers mental health services to acute-care hospitals, is basically zero-margin.

Closing or selling those struggling divisions should free up more cash for acquisitions as the company aims to benefit from current trends.

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T.G. Wolf does not own shares in any of the companies mentioned.