HealthSouth Risk/Reward Profile Grows Worse

Barclays' Joshua Raskin has downgraded HealthSouth Corp (NYSE: HLS) to Underweight from Equal Weight on unfavorable risk/reward.

Following are Raskin's seven reasons for the downgrade:

1. "We believe there is increasing scrutiny around IRF payments in the Medicare program, including updated MedPAC pressures."
2. "Medicare Advantage historically has not utilized services at HealthSouth at the same rate as Medicare FFS."
3. "Acquisitions continue to obscure unimpressive organic growth for the IRF segment."
4. "Leverage is up substantially over the past 1.5 years as a result of the company's recent acquisitions of CareSouth, Reliant and Encompass."
5. "We believe the cross-selling opportunity between the inpatient rehab segment and home-health segment is overstated."
6. "Based on HealthSouth's current valuation and our outlook for 2016 and 2017, we believe there is little room for multiple expansion."
7. "We believe the CJR payment model presents a potential risk for HealthSouth."

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Meanwhile, Raskin has cut the price target by $3 to $42, while maintaining the full-year EPS at $2.45.

At the time of writing, shares of HealthSouth fell 3.13 percent to $38.32.