Skilled Healthcare Group Inc. hasn’t set Wall Street on fire in its first six months as a public company. That doesn’t bother its top official.
“If you’re a newly traded company (investors) will want to watch a couple of quarters to make sure you’re going to hit your numbers before they get wild about your stock,” Chief Executive Boyd Hendrickson said. “We feel really good about the company, and we feel good about the decision to go public.”
Skilled, a Lake Forest-based nursing home company, went public in May, raising nearly $120 million for the company. Shareholders sold another $120 million worth of stock in the offering.
The company had a market value of about $545 million last week, about even from when it debuted.
“If you follow the company in 2008, it will be a far different story,” Hendrickson said.
Wall Street’s been a fickle lover of nursing homes this year.
Investors have taken a shine to Manor Care Inc., a large chain out of Toledo, Ohio, sending its shares up 41% this year to a recent market value of $4.8 billion.
Irvine’s Sun Healthcare Group Inc. is up 26% so far this year with a market value of $700 million.
And investors recently have warmed up to Kindred Healthcare Inc. of Louisville, Ky.,its shares were down more than 20% for the year until last week, when they rallied up about 1% for the year with a market value of $975 million.
Investors haven’t embraced every nursing home operator.
Earlier this month, Ensign Group Inc. of Mission Viejo’s initial public offering debuted below its already lowered price range before closing up about 3% in its first day of trading. Ensign’s shares have been largely flat since then with a market value of $340 million last week (see Healthcare column, page 12).
Hendrickson hedged when asked to discuss Ensign, saying the two companies are different animals because of their patient mixes.
“I don’t think we’re going to go head-to-head with them,” he said. “They’ve got a little bit of a different operating model.”
Skilled emphasizes caring for sicker patients 65 to 80 years of age whose costs are covered by payers such as Medicare, the government program for the elderly, or managed care insurers. Its patients could be recovering from a hip replacement or other surgery.
“These patients are typically more medically complex and therefore provide a higher level of reimbursement,” said Banc of America Securities analyst Gary Taylor in a coverage initiation report on Skilled.
That’s compared to patients covered by Medicaid, the government program for the poor. They tend to need less intensive care during the final stages of their lives.
For the first six months of the year, Skilled derived 30% of its $300 million in revenue from Medicaid.
By contrast, Ensign derived about 45% of its $198 million in first-half revenue from Medicaid.
Skilled runs nearly 90 facilities in California and five other states and plans to remain a regional provider in the Western part of the country, Hendrickson said. The facilities have some 8,900 beds among them.
Besides long-term care, Skilled also offers hospice care and rehabilitative medicine through divisions of the company.
In the third quarter, Skilled swung to a profit of $6.9 million from a net loss of $700,000 a year earlier. Revenue rose 19% to $16l.5 million.
For the year, Skilled is expected to post a profit of about $28 million. In 2006, the company posted a profit of $17.4 million before the effects of preferred stock accretion. Sales are expected at $631 million, up about 20%.
The company plans to grow by building facilities with major hospitals, particularly in Texas.
“If you’re doing it in conjunction with the hospital, rather than going out and building a free-standing facility, you kind of have buy-in from the acute care,” Hendrickson said. “You’ve got a need there that you’re trying to help fill.”
Hendrickson, 63, has been with Skilled since 2002, back when it was known as Fountain View Inc. His background includes a stint at Beverly Enterprises Inc., a now-private nursing home chain out of Fort Smith, Ark.
Fountain View filed for bankruptcy in 2001 after being hit with reimbursement cuts and a $6.1 million jury verdict in a negligence case it eventually settled for $1.1 million.
The company emerged from bankruptcy two years later and changed its name to Skilled Healthcare. Heritage Partners Inc., a Boston investor that owned half of Skilled prior to the bankruptcy, ended up owning 80% of the reworked company.
Heritage hired what’s now Credit Suisse Group in 2005 to look at options for Skilled. An initial public offering was considered at that time. Instead, Onex Corp., a Toronto investor, bought the company for $645 million.
Onex owns about 78% of Skilled after the public offering. n
