Fallout from the Federal Government’s move toward austerity has officially begun. One of the first groups to take a hit was the nursing home sector which saw stocks plunge on Aug. 1 when it was announced that the government would “slash their funding by almost $4 billion a year,” according to the Financial Times (http://www.ft.com/intl/cms/s/0/ec5dfd92-bc72-11e0-acb6-00144feabdc0.html#axzz1TtIulMre). While the cuts were not directly related to the debt ceiling and deficit reduction plans making all the headlines, they do show how real companies will be affected by the cuts being proposed, and enacted, by Congress, according to the FT report.
Analysts quoted in the story suggest that more cuts to the sector’s funding could follow as efforts to shrink the Federal Government move forward. The sector currently receives about 30 percent of its funding from Medicare.
The stock prices of four small cap nursing home companies all took serious hits on the news Aug. 1. Three of the four managed a rebound on Aug. 2 but did not come close to recouping their losses. On the bright side, some analysts predict that Medicare reform will eventually move more patients into this sector at some point in the future, which would be good news long term for a sector that has always been resilient. Any gamblers out there?
Foothill Ranch, CA-based Skilled Healthcare Group (NYSE: SKH, http://www.skilledhealthcaregroup.com/) operates skilled nursing facilities, assisted living facilities, hospices and a rehabilitation therapy business and has a market cap of $208.4 million. Its shares dropped 42.5 percent to $5.06 on Aug. 1 but by mid-day Aug. 2 managed to rebound by about 8 percent to $5.45. Just last April this stock was trading for $15.56.
Irvine, CA-based Sun Healthcare Group (Nasdaq: SUNH, http://www.sunh.com/) operates skilling nursing centers, assisted and independent living centers and mental health centers. Its stock price plunged 52 percent Aug. 1 to $3.35 but managed to rebound Aug. 2 by more than 3 percent to $3.46 at mid-day. Its 52-week high was $15.01.
Mission Viejo, CA-based The Ensign Group (Nasdaq: ENSG, http://www.ensigngroup.net/) operates 87 nursing and rehabilitative care facilities in western states. Its stock price dropped 22.2 percent on Aug. 1, pushing the price all the way down to $22.09. Unfortunately, it took another hit Aug. 2 and by mid-day it was down another almost 4 percent to $21.20, but still above its 52-week low of $16.35 in August 2010. ENSG traded for more than $34 last April.
Louisville, KY-based Kindred Healthcare (NYSE: KND, http://www.kindredhealthcare.com/) has three divisions: hospitals, health services and rehabilitation. KND was up more than 5 percent Aug. 2 to $14.11 after taking the plunge the day earlier. This was nearly a $30 stock in April.