Genesis Gets Boost from Optimistic Analyst Outlook for Company, SNF Industry

Despite losing $58.1 million in the third quarter of 2018, leadership at Genesis Healthcare, Inc. (NYSE: GEN) appeared upbeat during this past earnings season — and last week, they got an early Christmas present that seems to justify their optimism.

Financial services company Stifel upgraded its outlook on the Kennett Square, Pa.-based skilled nursing provider from hold to buy, favorably evaluating the prospects of both the company and the marketplace as a whole.

“We see early signs of stabilization in the core skilled nursing business, improving government reimbursement outlook, synergies garnered from portfolio restructuring; potential margin improvements under new payment model; and upside from operating leverage in 2019,” the St. Louis-based Stifel wrote in its note describing the outlook change.

The issuance of the note contributed to a boost in Genesis’s stock price, which rose 6.71% to $1.59 per share at market close on Friday.

Stifel pointed to Genesis’s departure from 55 unprofitable buildings, which it expects to generate $50 million in expense savings through the second quarter of 2019, as well as completed and in-process rent reductions from certain landlords. The company also plans on focusing on long-term care residents in the coming year, according to Stifel, and remains open to selling off more properties in non-competitive markets in order to pay off debts.

But Stifel also had macro-level optimism about skilled nursing as a whole, pointing to the implementation of the Patient-Driven Payment Model (PDPM) in October 2019 as a reason to potentially invest in Genesis.

“Operators believe they can save 15-25% operating expenses on providing therapy to short-stay rehab patients through reduction in headcount, administrative costs, and servicing Medicare patients with group and concurrent therapy,” the firm noted.

Stifel also predicted that providers can expect a Medicare market basket increase in line with the boost of 2.4% that the industry received in fiscal 2019, which began in October; the announcement for fiscal 2020 will likely come in the spring.

On Genesis’s third-quarter earnings call last month, executives touted the company’s divestiture of 26 facilities through 2018, with CEO George Hager estimating that Genesis was about 80% done with its planned portfolio pruning. Chief financial officer Tom DiVittorio also noted that while occupancy still declined by 30 basis points year over year, it was falling at a slower rate than in the past, predicting that the bottom was near.

“I think you can tell there’s a lot more optimism in our voices,” Hager said on the call. “The data is pointing in the right direction for the first time in a long time, and we’re looking forward to finishing 2018 strong with a lot of positive outlook going forward in 2019.”

Written by Alex Spanko

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Alex Spanko
Alex covers the long-term health care industry for Aging Media Network, with a specific interest in the intersection of finance and policy. Outside of work, he reads nonfiction, experiments in the kitchen, enjoys pretty much any type of whiskey or scotch, and yells at Mets games — often all at the same time.

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