Market Overview

Bank Of America Sees Value In A Humana-Kindred Healthcare Deal

Bank Of America Sees Value In A Humana-Kindred Healthcare Deal
Related HUM
Checking In On The Healthcare Sector Ahead Of Q1 Earnings Season
Analyst: Why Diplomat Could Be Amazon's Ticket Into The Pharma Space
Upcoming Dividends: 79 Companies, 25 Increases, 13 Double-Digit Increases (Seeking Alpha)
Related KND
Jim Cramer Gives His Opinion On Corning, McDonald's And More
45 Biggest Movers From Yesterday
Stocks To Watch: Back To School For Apple (Seeking Alpha)

The health care sector could see another notable merger, as insurer Humana Inc (NYSE: HUM) is reportedly in talks to acquire the acute care provider Kindred Healthcare, Inc. (NYSE: KND).

The Analyst

Bank of America Merrill Lynch's Kevin Fischbeck is no longer rating Kindred Healthcare's stock, as the analyst said shares are no longer based on fundamentals amid M&A reports.

The Thesis

According to media reports, Humana would team up with private equity firms Welsh, Carson, Anderson & Stowe and TPG to acquire Kindred Healthcare for $9 per share, which implies an 8x multiple on 2018E EBITDAR, Fischbeck said in a research report. (See the analyst's track record here.) 

As part of a deal, the private equity firms would acquire Kindred Healthcare's long-term care hospitals and inpatient rehabilitation facilities. Separately, Humana and a private equity firm would assume the home health and hospice operations.

Kindred Healthcare is the largest company in the home health industry and second largest in the hospice industry, both of which are highly fragmented, Fischbeck said.

"We think the potential deal as reported could have strategic merits as [Humana] seeks to engage members, transition them to low-cost settings of care and ultimately control trend," the analyst said. 

A $9-per-share offer represents only a 5-percent premium to Kindred Healthcare's closing price on Friday, but implies a "significantly higher" premium to the $6 range shares were trading at ahead of its third quarter earnings report, according to BofA. 

Price Action

Shares of Kindred Healthcare were trading higher by more than 6 percent Monday morning at $9.05.

Related Links:

Express Scripts Outlook Improves Amid Tax Reform, CVS-Aetna Deal

5 Reasons The Prognosis For Acadia Healthcare Just Got Worse

Latest Ratings for HUM

Feb 2018JP MorganMaintainsNeutralNeutral
Feb 2018Deutsche BankMaintainsHoldHold
Feb 2018Credit SuisseUpgradesNeutralOutperform

View More Analyst Ratings for HUM
View the Latest Analyst Ratings

Posted-In: Bank of America healthcareAnalyst Color News Health Care M&A Analyst Ratings General Best of Benzinga


Related Articles (HUM + KND)

View Comments and Join the Discussion!