Shares of home health care providers tumbled Monday after an analyst downgraded the sector, saying 2012 will be a difficult year.
Robert W. Baird & Co. analyst Whit Mayo lowered his rating on the sector to "Underperform" from "Neutral," and downgraded shares of Almost Family Inc., LHC Group, and Gentiva Health Services Inc. Shares of each company fell at least 8 percent. Mayo said Wall Street is much too optimistic about the sector's performance in 2012. He believes cuts in Medicare reimbursement rates will be steeper than expected, while new regulations will hurt patient volumes and create additional debt.
The analyst lowered his rating on Gentiva to "Neutral" from "Outperform," and downgraded Almost Family and LHC Group "to "Underperform" from "Neutral." He maintained a "Neutral" rating on Amedisys Inc. Mayo made sharp cuts to his profit estimates and price target for all four stocks, and said the shares are overpriced.
In 2010, questions were raised about whether home health agencies boosted the number of visits they made to patients in order to reach the threshold at which Medicare reimburses providers an additional $2,200 per patient. Investigations were launched into Amedisys, LHC, Almost Family, and Gentiva. Mayo said new regulations will be created in response to those investigations, and they will lead to slightly lower patient volumes and an increase in bad debt, or unpaid bills.
In afternoon trading, LHC Group shares lost $1.96, or 8.1 percent, to $22.38, while shares of Almost Family declined $2.77, or 10 percent, to $25. Gentiva shares fell $2.13, or 9.7 percent, to $19.78. Shares of Amedisys took a smaller hit, giving up 68 cents, or 2.5 percent, to $26.98.