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HealthSouth Corporation (NYSE: HLS), the Alabama-based rehabilitation company, is close to completing a massive restructuring after years of tough times.New management, three divestitures to be completed by the end of 2007 and a soon-to-be-more-friendly approach from Medicare and Medicaid, should allow this stock to perform nicely during the next three-to-five years.
HealthSouth was a boom-bust stock as former CEO Richard Scrushy built the diversified healthcare company into one of the larger and faster growing healthcare companies in the US during the 1990s. However, a number of financial irregularities came back to haunt Scrushy and his shareholders, leading to the stock tanking.
New management was brought in earlier this decade--well-respected execs from HCA--who first had to address the legal and accounting issues that plagued the company. Then last year the company announced it would begin selling non-core assets and become a focused rehab business.
The divestitures are for the most part completed and now the last part of the puzzle needs to be put in place. Medicare and Medicaid need to get the correct reimbursement rates so this very important industry can serve customers effectively and earn a return on investment. As boomers get older and stay more active, the rehab service that HealthSouth provides will become more and more important.
HealthSouth's stock ran up to $25 in anticipation of its three divestitures but has sold off to $20.50. Use this weakness to buy the stock, this could be a multi-bagger in the next few years.
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Reader Comments (Page 1 of 1)
5-10-2007 @ 7:36AM
Charon Nix said...
Works nicely as you say regarding HLS survival. The only thing missing in your analysis is DEBT. This camel is lying down because it is loaded to the humps with debt and lenders who will keep it alive to pay and pay. Margins are tight. Government is stingy with rehab dollars. Be prepared for years of sub-market gains. As for me, I rode for a decade and that was enough.
5-09-2007 @ 12:55PM
Tom Hui said...
Regarding Healthsouth, is it possible that the new money that enabled Healthsouth to remain in business and ultimately get out of bankruptcy placed the current management team to sell off Healthsouth's assests, piece by piece, with the ultimate goal of dissolving the company? They have already sold Diagnostic Imaging division, Surgery Division, and Outpatient Rehab division. Is what's left big enough or the right size to compete in today's dynamic and competitive healthcare environment? There is speculation, and it makes logical sense, that Healthsouth has no need or use for the corporate office campus environment in Birmingham. I, personally, would not own shares of Healthsouth and wonder if the smart money already position themselves to profit from the Healthsouth debacle and their play is near the end of the line. Is there really a plan to run Healthsouth In-patient Rehab profitably?
5-09-2007 @ 5:54PM
m.r.bryan@acsalaska.net said...
I agree with reader comment number 1 and would add that the ability for HealthSouth to be profitable lays largely in the hands of Medicare and whether the CMS further reduces payments for rehabilitation. Reimbursement is what floats the boat for HealthSouth and other such corporations and reimbursement hasn't increased in years.
5-10-2007 @ 10:11AM
Tom Hui said...
The best outcome for Healthsouth shareholders is if the company is acquired. Over the past year, HCA went private, USPI went private, and Symbion went private. Healthsouth sold its surgery division to a private equity group. If you like ambulatory care stocks and company, perhaps NOVA is the only publicly held company in the surgery center business and it is logical to be a target for acquisition or going private.