RehabCare Group Inc. (RHB), which provides rehabilitation services, continued its hot streak of earnings surprise as it beat for the 4th consecutive quarter. Revenue grew by 11.6% on strong demand for skilled nursing services. RHB trades at 12.5x forward earnings.

Company Description

RehabCare provides rehabilitation program management services at over 1,200 hospitals and skilled nursing facilities in 42 states. The company also operates freestanding rehabilitation hospitals and long-term acute care hospitals across the country.

Revenue Jumped 11.6% in the First Quarter

On May 5, RehabCare reported first quarter results which surprised on analysts’ estimates by 54.84%, or 17 cents a share. Earnings per share were 48 cents compared to 25 cents per share in the year ago period. Analysts expected 31 cents.

Revenue grew by 11.6% to $203.4 million compared to a year ago fueled by growth in each segment. The Skilled Nursing Rehabilitation Services segment had a stronger than expected performance, with growth of 9.5%, primarily due to strong same store revenue growth, exceptional average daily census (ADC) and strong productivity.

The Hospital Rehabilitation Services segment saw revenue increase 7.2%. Inpatient operating revenues improved 6.7% and inpatient rehabilitation facility same store discharges climbed 1.1% compared to the year ago period.

Balance Sheet

The company continues to whittle at its debt. At the end of March, the company had $38.2 million in cash and cash equivalents and $57 million in outstanding debt. Net debt (outstanding debt less cash and cash equivalents) fell to $18.8 million at the end of March compared to $60.5 million in the year ago period.

2009 Outlook

The company is cautious about the rest of the year despite the outstanding first quarter. RehabCare believes that unit growth may be impacted by the current credit environment going forward. Downward pricing pressure may also occur in the fourth quarter due to the proposed rule for fiscal year 2010 Medicare reimbursement in skilled nursing facilities.

The company has decided not to provide revenue or earnings per share guidance for the year.

Consensus Estimates Rise

Despite the lack of guidance and cautious words from the company about the economic conditions for the rest of the year, covering analysts are more bullish. Second quarter estimates are up 4 cents to 37 cents per share in the last month.

Full-year consensus estimates jumped 8.5% to $1.41 from $1.30 in the last 30 days.

Value Fundamentals

RehabCare Group is a Zacks #1 Rank (strong buy) stock. The company trades at 12.5x forward earnings and has a price-to-book of 1.32.

Zacks Investment Research
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