Morgan Keegan Says Sun Healthcare (SUNH) to Outperform

In an analyst report dated Mar.4, Morgan Keegan kept its outperform on Sun Healthcare, (NASDAQ: SUNH). They think that nursing homes have little to lose in the health reform proposals.

“We believe Sun Healthcare Group can sustain above-average growth by increasing its medically complex Medicare and managed care census, providing higher-acuity short-stay services, improving operating efficiency, generating cash to pay down debt, and making selective accretive acquisitions. We recommend purchase.”

Highlights of the report were:

“Sun Healthcare Group reported fourth quarter EPS of $0.28, topping our at-consensus $0.26 estimate. We are maintaining our 2010 and 2011 estimates of $0.96 and $1.02, respectively.”

“During the quarter, Sun's occupancy and skilled mix deteriorated, consistent with the experience of other nursing home operators during the recession."

"The company was able to overcome these trends by boosting the acuity of its skilled services,helping preserve revenues.”

“The company's cost containment initiative in September resulted in general and administrative expenses declining 61 basis points as percentage of revenues annually. This margin enhancement led to the better-than-expected bottom line."

"Nursing homes have fairly little at stake in the healthcare reform drama. We expect Sun to deliver results in line with its 2010 EPS guidance of $0.92-$0.98 as we await details of the pending overhaul of the RUGs system used by Medicare to pay nursing home operators.”