Sector Snap: Home Health Care

INDIANAPOLIS (AP) — An analyst raised his earnings estimates for home health care companies Thursday, saying that the sector is in for "a much softer legislative landing than feared."

Robert W. Baird's Whit Mayo raised his estimates for Gentiva Health Services, Amedisys, LHC Group and Almost Family Inc. by about 20 percent for 2010 and 30 percent for 2011.

A health care overhaul is currently under debate in Congress. He also wrote that he is confident funding cuts will be "pushed out and phased-in over multiple years."

Mayo said in the note he believes the home health care stocks are heavily shorted despite an 85 percent rally since March.

"Our thesis remains that investor sentiment is poised to dramatically turn more positive over the next two months on the sector," Mayo wrote.

But Mayo downgraded a rating on Almost Family to "Neutral" from "Outperform." He noted that the company's shares have rallied 30 percent over the past couple months while other stocks in the sector have traded down or remained flat.

"We have been long-time bulls on (Almost Family) and continue to be; however, given the run-up in the shares, and what seems to us to be a balanced risk/reward, we feel prudent to lower our recommendation for now," he wrote.

Shares of Almost Family slid $1.56, or 4.1 percent, to $36.49 shortly after the market opened. Amedisys added 56 cents to $41.78, Gentiva rose 38 cents to $24.18, and LHC lost 7 cents to $32.39.

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