E Kindred Healthcare Not A Good Bet For Individual Investor

If you've followed me, you've probably noticed that I've been on a nostalgia kick, looking up some companies I covered as an analyst quite a few years ago. Sad to say, I'm batting about 50% among the venture-backed companies I was watching in 2003 - but at least for each one that folded, another underwent a successful acquisition. Success, mind you, means the VCs made a profit; but how are the acquirers doing today?

One early-stage company that caught my eye back then was Centerre Healthcare Corp., which was still operating out of an incubator and had raised $7 million in VC as of late 2002. It had seven employees at the time, with a business model of running inpatient rehab centers inside hospitals.

Centerre seems to have flourished for a decade; by 2012, Modern Healthcare was calling it one of 'Healthcare's Hottest.' By 2012 its model had evolved to running freestanding offsite rehab facilities in partnership with acute-care hospitals. Centerre was up to 840 employees and had annual revenue in 2011 of $56.3 million, owning five rehab centers with four more under construction.

Enter Kindred Healthcare (KND). In January of 2015 it finalized its acquisition of Centerre for $195 million; by then, Centerre had 11 rehab centers and 1600 employees.

At the time of the acquisition, Kindred had recently restructured from a primary focus on post-acute-care hospitals and services (skilled nursing facilities, rehab centers, transitional care hospitals, plus home care) to a focus on care management, exiting markets where it did not have all the pieces of continuum of care in place. The Centerre acquisition was seen as beefing up the rehab component of that continuum in the markets that both KND and Centerre served.

So how's that working out?

Well ... not great. Kindred's more recent shift in focus, with an emphasis on home health care, originally seemed if not prescient certainly well-timed, given the aging Baby Boomer population and the desire to reduce inpatient expenditures by insurers. Its stock took a big hit after a negative earnings surprise at the end of 2016, but had recouped, hitting a year's high of $11.90 in early July - and then came the mini-apocalypse. On July 25, the Centers for Medicare and Medicaid Services announced that it would be cutting funding for home health agencies by $1.3 billion. Kindred's stock (as that of its competitors) dropped 15% immediately and has continued to decline, all the way back down to $7.10 yesterday.

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I do not own stock in any companies mentioned nor am I compensated in any way whatsoever to write about them.

Disclosures: No positions.

 

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Wendell Brown 3 years ago Member's comment

I follow Cardinal Health, which also has a 'baby boomer' aspect, and was sobered to see an analyst recently say "the market is expecting almost no profit growth over the remainder of the company's life." I think the healthcare conundrum is going to tamp down everything except biotech.