UBS Starts Coverage Of Genesis Healthcare; Time Needed To 'Reposition Balance Sheet'

In a report published Tuesday, UBS analyst AJ Rice initiated coverage of Genesis Healthcare Inc (NYSE: GEN) with a Neutral rating and $7 price target. The company's experienced management team and its broad and diversified portfolio make it a leader in the national long-term care sector.

On the other hand, with the company being highly leveraged and about 85 percent of its portfolio being leased, the company potentially has limited maneuvering ability. It runs 511 facilities across 34 U.S. states, with 1,569 nursing home-related rehab contracts. About 83 percent of the company's revenues come from skilled nursing, with another 13 percent from rehab services, 2 percent from home health/hospice services and 3 percent from other sources.

Most of Genesis Healthcare's facilities are leased, with only 15 percent facility ownership at present. The analyst expects the company to deliver almost 3 percent core revenue growth in the long term, in the absence of reimbursement cuts and significant divestitures.

"Net income growth should be faster as GEN deploys FCF to reduce debt and also refinances its debt via borrowings from HUDs, which could save the company $14 mln in interest annually," Rice stated.