The Centers for Medicare & Medicaid Services has issued a final rule that cuts Medicare skilled nursing facility Prospective Payment System payments by 11.1% in FY 2012 by $3.87 billion. The cuts are listed as being to “correct for an unintended spike in payment levels and better align Medicare payments with costs.”

The 2012 recalibration will result in a reduction of 12.6% to skilled nursing facility payments of $4.47 billion, but this would be partially offset by the FY 2012 update with an increase of 1.7% to Medicare payments to skilled nursing facilities.  This reflects a market basket of goods and services reduced by a 1% multi-factor productivity adjustment mandated by the Affordable Care Act.

A 2.5% increase for hospice reimbursement is not going to be anywhere close to offsetting the losses here.

Kindred Healthcare Inc. (NYSE: KND) is in three segments of hospitals, health services, and rehabilitation.  It gets somewhere close to 30% of its revenues from this segment being cut.  Its stock opened down at $14.06 and shares are down almost 27% at $13.77 versus a 52-week range of $11.52 to $28.99.

Sun Healthcare Group Inc. (NASDAQ: SUNH) may have its entire profits gone or at risk now as it has awful exposure here.  Its shares opened down at $3.21 versus a $7.00 close.  Shares are now down a total of 55% at $3.13 and its shares hit a low so far of $3.10 (52-week low) versus a 52-week high of $15.01.

Skilled Healthcare Group Inc. (NYSE: SKH) operates skilled nursing facilities, as well as assisted living facilities, hospice service providers, home health providers, and a rehabilitation therapy business. Its stock is down a sharp 37% at $5.44 after opening at $6.61 this morning.  Its 52-week trading range is $2.33 to $15.93.

Five Star Quality Care Inc. (NYSE: FVE) operates senior living communities via independent living or congregate care communities, assisted living communities, and nursing facilities, is down “only” about 8% at $4.55 versus a 52-week trading range of $3.50 to $8.95.

Sunrise Senior Living Inc. (NYSE: SRZ), which offers senior living services and independent living services, is down only 3% at $8.53 against a 52-week range of $2.18 to $12.44.

National Healthcare Corporation (NYSE: NHC) operates and manages long-term health care centers, and associated assisted living and independent living centers.  Its stock is down 12% at $41.78 against a 52-week range of $33.51 to $53.08.

Amedisys Inc. (NASDAQ: AMED) is in home health and hospice services and its shares are down 3% at $25.08. Almost Family Inc. (NASDAQ: AFAM), a home health provider, is down 3.7% at $24.33.

Senior Housing Properties Trust (NYSE: SNH) is a REIT in hospitals, nursing homes, senior apartments, independent living properties, and assisted living centers.  Its shares are also down today by 2.4% at $23.37 versus a 52-week range of $20.42 to $25.28.

Here is what is interesting about this move… This was “pre-budget deal.”  If you think that Medicare and Medicaid payments are the only ones at risk in the weeks, months, and years ahead, you might want to think again.  Cuts will be coming for a myriad of reasons and from many angles.  Companies which rely heavily or solely on government contracts for goods and services are all under more scrutiny.

JON C. OGG

This is the list of Unusual Suspects to watch in the week ahead: Amazon.com Inc. (NASDAQ: AMZN); American Water Works Company, Inc. (NYSE: AWK); Dynegy Inc. (NYSE: DYN); E*TRADE Financial Corporation (NASDAQ: ETFC); Capital One Financial Corporation (NYSE: COF); First Solar Inc. (NASDAQ: FSLR); Ford Motor Co. (NYSE: F); Genworth Financial Inc. (NYSE: GNW); Mellanox Technologies Ltd. (NASDAQ: MLNX); US Airways Group Inc. (NYSE: LCC); Delta Air Lines Inc. (NYSE: DAL); Brookdale Senior Living Inc. (NYSE: BKD); Five Star Quality Care, Inc. (NYSE: FVE); Kindred Healthcare Inc. (NYSE: KND); Skilled Healthcare Group, Inc. (NYSE: SKH); and Sun Healthcare Group Inc. (NASDAQ: SUNH).

Again, these are intended to be the non-earnings stocks to watch even if some are reporting earnings.  In separate notes, we already published an earnings calendar with more than 20 detailed previews of the top earnings reports for this coming week.  There are also some carry-over issues that investors will want to track in the Top 11 Analyst Calls of the Week that we have for review and preview with matters that have longer-term implications.

Amazon.com Inc. (NASDAQ: AMZN) was given a feature article in Barron’s this weekend titled “It’s All About the Revenues at Amazon” where the financial publication says that it is worth another 25% more than it already is today.  If the market is flat or just not real weak due to Washington D.C. on Monday morning we would expect another gain of 2% or so despite all-time highs having been seen last week.

American Water Works Company, Inc. (NYSE: AWK) is one we have routinely featured as being the best water stock out there.  The water utility giant almost never reaches a 10% pullback from its highs, but on Friday it did breach that 10% threshold barely at $27.63 would mark it and the low was $27.54. Shares closed at $28.00.  The company does have earnings coming up, but that is very rare to get the 10% pullback.  We will not be shocked if the company announces a capital raise on strength.

Dynegy Inc. (NYSE: DYN) was down over 3% in regular trading on Friday, but shares popped more than 5% in the after-hours session to $6.05 on news that a Delaware court rejected PSEG’s attempt to block the company’s restructuring.

E*TRADE Financial Corporation (NASDAQ: ETFC) could have another buyer as Capital One Financial Corporation (NYSE: COF) reportedly had considered making a bid back in 2010.  This report surfaced after the close on Friday.  Our take stands on our “maximum fair market value being $20″ unless a buyer has a way to end the overhang of its ongoing problem loan areas.

First Solar Inc. (NASDAQ: FSLR) may have earnings come up this next week but word surfaced late Friday that it has Cory Steffek to help the company make acquisitions and/or seek out partnerships.  This fits in with our solar mergers expectations in the coming months.

Ford Motor Co. (NYSE: F) was listed in Barron’s this weekend as being “ready to roll” in an artgicle.  Despite having had lower earnings and despite some new UAW labor issues, Barron’s said Ford could top $15 if analysts are right.  While that is another 25% higher, that is actually far less aggressive than the consensus price targets from Thomson Reuters.

Genworth Financial Inc. (NYSE: GNW) rose Friday on word that the company is taking steps for a possible splitting-up of the company and to move to reinstate share buybacks.  If this is the case, then the gains may have much more to go as a candidate for moving away from mortgage guaranty operations.  Keep in mind that the 6% gain to $8.32 on Friday compares to a 52-week range of $7.56 to $14.77.

Mellanox Technologies Ltd. (NASDAQ: MLNX) was noted over the weekend as having large options bets that its gains in cloud computing will keep going.  At $34.85, keep in mind that the Israeli-outfit has a 52-week trading range of $14.60 to $35.60.

Two Tales in Airlines: US Airways Group Inc. (NYSE: LCC) announced late Friday that it was suing its pilot union for illegal job actions for its 5,200 pilots covered in the union.  In another bit of weekend news, Delta Air Lines Inc. (NYSE: DAL) faces some negative press as two of its jets apparently collided on the ground in Chicago.  No injuries were reported, but how organized does that sound?

Woes come to nursing homes… Medicare announced big cuts on Friday afternoon regarding reimbursement and payments to nursing homes as part of what was announced in April to lower overpayments to the nursing home segment.  This created a disaster in many key stocks: Brookdale Senior Living Inc. (NYSE: BKD) was down 6.3% at $20.04; Five Star Quality Care, Inc. (NYSE: FVE) was down 9.5% to $4.48; Kindred Healthcare Inc. (NYSE: KND) was down about 20% to $15.00; Skilled Healthcare Group, Inc. (NYSE: SKH) was down 19% to $7.11; Sun Healthcare Group Inc. (NASDAQ: SUNH) was down 33% at $4.69.

JON C. OGG

Accenture plc (NYSE: ACN) Reiterated Buy and Raised target at Argus.
Cato Corporation (NYSE: CATO) Reiterated Strong Buy as Value at Zacks.
Five Star Quality Care Inc. (NYSE: FVE) Started as Buy at Jefferies.
Fortress Investment Group (NYSE: FIG) Started as Outperform with $7 target at Credit Suisse.
Hudson City Bancorp, Inc. (NASDAQ: HCBK) Raised to Market Perform at FBR.
MetLife Inc. (NYSE: MET) Reiterated Buy at Argus.
Sears Holding Corp. (NASDAQ: SHLD) Maintained Underperform as Bear of the Day at Zacks.
Sina Corporation (NASDAQ: SINA) Raised to Neutral at Goldman Sachs.
Spreadtrum Communications Inc. (NASDAQ: SPRD) Reiterated Buy at BofA/ML.
Telesp S.A. (NYSE: VIV) Raised to Outperform as Bull of the Day at Zacks.
Tim Hortons Inc. (NYSE: THI) Started as Buy at BofA/ML.

You are invited to join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Aegerion Pharmaceuticals, Inc. (NASDAQ: AEGR) has not been public that long, but it is expected to sell up to 3.25 million shares of its common stock and another 1 million shares by certain pre-IPO stockholders this week.  The filing itself was for up to $86,606,500.00 and the book-runners are Jefferies and Deutsche Bank; co-managers are listed as Leerink Swann, Needham & Company, and Collins Stewart.

DCP MIDSTREAM PARTNERS, LP (NYSE: DPM) has filed an S-3 offering intended to raise up to $150 million accessing a “shelf registration.”  The entity’s common units are listed on the NYSE, under the symbol “DPM.”   At current trading levels the company’s market cap is $11.75 billion. In Tuesday trading, common units closed at 39.71. The 52-week price range is $28.82 to $44.17.

Six Flags Entertainment Corporation (NYSE: SIX) has filed an S-3 offering to cover additional shares resulting from the company’s stock split.  The company’s common stock trades on the NYSE under the ticker symbol “SIX.”  At current trading levels the company’s market cap is slightly in excess of $2 billion.   In Tuesday trading, shares closed at 74.60, up 1% over Monday’s closing price.  The 52-week price range is $31.76 to $80.50.  Be advised, the shares registered may not be sold entirely or at all but they cover up to 13,569,256 shares of common stock.

Wave Systems Corp. (NASDAQ: WAVX) has filed a shelf registration that allows it to raise up to $30 million using a “shelf registration” to replace an expiring shelf registration.  At current trading levels the company’s market cap is roughly $228 million.   In Tuesday trading, shares closed at 2.89, up 21% over Monday’s closing price.  In first-hour trading today, the shares are in decidedly volatile, trading at $2.78, down 6.7%.  Its 52-week price range is $1.76 to $5.31.  The reason we note this one is

Most recently, we featured this heavily discounted and huge drag of a secondary offering from Five Star Quality Care Inc. (NYSE: FVE).  This one has bounced nearly 10%, and that is only about one-fourth of the share damage that came from announcing the secondary offering in the first place.

Invesco Mortgage Capital Inc. (NYSE: IVR) was another fresh secondary offering and that mortgage-REIT has a monster yield that investors have to consider against peers.

JON C. OGG

In each company we have offered a background and/or a preview of what to expect and added color and share price trend data in if applicable or if merited.  You will notice that we do not have a single earnings report in this piece.  There is actually going to be a big list of companies (about 20 big companies) reporting earnings this coming week and we created a separate earnings calendar with detailed previews on each company.  Another similar weekend feature was our Top Ten Analyst Calls of the Week.

Apple Inc. (NASDAQ: AAPL) and Google Inc. (NASDAQ: GOOG) are sort of two-in-one as both sort of confirmed on Friday the omens we saw on Thursday.  Technicians, or chartists, have taken note and these are equally concerning.  Apple has broken its 200-day moving average for the first time in this market cycle; Google broke under $500 for the first time since last September and a simple chart read would signal that weakness is more likely than strength.

Deer Consumer Products, Inc. (NASDAQ: DEER) is a maker of small home and kitchen electronic appliances in China, and it has been caught up in the middle of the huge drop in Chinese stocks.  Friday was awful with a 21% drop to $5.07 after an outside research warning that it deserved closer scrutiny.  The company announced after the close that it reaffirmed guidance, affirmed its $0.05 dividend, said it had no negative corporate developments, claimed that all rumors were false, and it filed lawsuit against short sellers and fictitious bloggers alleging “an orchestrated scheme to manipulate and depress Deer’s stock.”  Anything out of China as a stock right now is under closer scrutiny, at best, so you have to do your own due diligence.

Express-1 Expedited Solutions, Inc. ( Amex: XPO) is a company that most have not heard of, even in the world of third-party logistics. It came on the map this last week after announcing that Bradley S. Jacobs, founder of both United Rentals and United Waste Systems, took a $150 million stake with co-investors. Jacobs will take over as chairman and CEO and he went on record saying that he plans “to build a multi-billion dollar transportation brokerage business over the next several years.”  Shares went from $2.19 to $2.83 during the week, but the peak price on the news was $3.13.  This company just got on the map and will be watched long beyond this week.

Five Star Quality Care Inc. (NYSE: FVE) will be on to watch after its secondary of 10 million shares priced at $5.00 and closed Friday only at $5.14.  This stock was all the way up at $7.20 less than two weeks ago and a 28% haircut is still far too much even when you consider the dilution.

Liberty Global, Inc. (NASDAQ: LBTYA) is set to hold its annual shareholder meeting on Tuesday.  This is the one day of the year that shareholders have any say in John Malone’s and his management team’s international cable operation.

Some of the companies in this are Danaher Corp.  (NYSE: DHR), Velti Plc (NASDAQ: VELT), BreitBurn Energy Partners L.P. (NASDAQ: BBEP), Kinder Morgan Energy Partners LP (NYSE: KMP), Central Pacific Financial Corp. (NYSE: CPF), Magnum Hunter Resources Corp. (NYSE: MHR), and Taubman Centers Inc. (NYSE: TCO). Another pending deal which needs to be watched is coming from Five Star Quality Care Inc. (NYSE: FVE).

We have looked at the pricing and/or trading action on each, along with how the deal looks against a market capitalization and how the shares have traded.  We have also added some color if it is applicable.

Danaher Corporation  (NYSE: DHR) announced that it is selling 17.5 million shares of common stock at $51.75 per share.  The closing price on Tuesday was $51.33 and the 52-week trading range is $35.19 to $56.09.  Prior to the effects of this offering, Danaher has a market cap of $34.8 billion.  The offering is expected to close on June 21, 2011.  Citi, Morgan Stanley, Barclays, and UBS are acting as joint book-running managers for the offering.  Baird, Jefferies, Banca IMI, Mitsubishi UFJ Securities and Wells Fargo are acting as co-managers.

Velti Plc (NASDAQ: VELT) has announced a secondary offering of 8 million shares at $15.25.  The closing price on Tuesday was $15.78 and the 52-week trading range is $9.91 to 19.32.  Before the effects of this offering, Velti has a market cap of $803 million.  Jefferies & Company, Inc. is acting as sole book-running lead manager of the offering, with RBC Capital Markets, Needham & Company acting as lead managers and Canaccord Genuity Inc. and ThinkEquity LLC acting as co-managers.

BreitBurn Energy Partners L.P. (NASDAQ: BBEP) has announced the offering of announced today a registered underwritten public offering of 7 million partnership  units at $19.78.  The closing price on Tuesday was $20.60 and the 52-week trading range is $13.12 – 22.31.  Before the effects of this offering, BreitBurn has a market cap of $1.2 billion.  The lead underwriters for the offering are: Deutsche Bank Securities, BofA Merrill Lynch, Citi and Wells Fargo Securities.

Kinder Morgan Energy Partners LP (NYSE: KMP) just filed to sell ‘units’ on Monday has sold 17.5 million shares in a secondary offering at $ per share. The closing price on Tuesday was $71.12 and the 52-week trading range is $59.34  to $77.85.  Before the effects of this offering, Kinder Morgan Energy Partners has a market cap of $22.7 billion.  BofA Merrill Lynch, Barclays Capital, Credit Suisse, J.P. Morgan, and Wells Fargo Securities will act as joint book-running managers of the offering.  More details are here on that full offering.

In this weekend’s version of The Unusual Suspects, we noted that Five Star is expected to have a secondary offering of up to 10 million shares this week and also noted that all of the shares are being sold by the company.  This stock has found its shares selling significantly because of dilution with a drop from $7.20 before the share sale was announced, down to $6.27 on the day of the news, and then to close out the week at $6.10.  Now we have almost another 5% drop so far on Monday.

Five Star is now worth about $210 million in market capitalization and at $5.83 it has a 52-week trading range of $2.72 to $8.95.  This one peaked at an intermediate term closing price of $8.78 on April 5th.  In the ensuing nine weeks the selling has been relentless.  The stock price has witnessed roughly half of this decline after the company announced plans for a secondary offering of 10 million shares.  What a reaction!

As a backdrop to this decline, the company has enjoyed remarkable stock performance year-over-year, very attractive fundamentals and positive operating numbers.  It might make some ask if the stock was overbought during its run higher in the first place.

In spite of the recent declines, Five Star is still up more than 70% for the year.  The company boasts a gross margin exceeding 86% and a profit margin of 2%.  Its quarter-over-quarter earnings are up 20.5%.  The company is number three in its industry with a return on equity (ROE) exceeding 16%.  Its PE is a modest 8.71, nearly the lowest of public companies in the industry.  Its forward PE is less than 7.  Remarkably positive, its Price to Free Cash Flow (P/FCF) is narrowly greater than $4.

The company also noted that the proceeds from the secondary offering will be for general business purposes, which includes repaying an outstanding bridge loan and for funding in part the cash purchase price of pending acquisitions and other possible future acquisitions.  This gives at least some growth capital to the company even if it is dilutive to existing holders from before the offering.  The current gross proceeds would come to close to $55 million after fees.  Our only concern in comparing this one to peers in senior care is that the company may not have a dividend for some time or that when it does declare a dividend that it may lag peer payouts.

With an average volume narrowly exceeding 200,000 shares per day, Five Star would not fit all portfolios.  Analysts consensus is a mediocre 3.0 on a 5 point scale, but we only saw one official price target at $7.00 per share.  That will change after the secondary offering as the company is effectively raising capital and simultaneously increasing its presence with Wall Street analysts.  The joint book-running managers for this offering are Jefferies & Company, Citi, and UBS Investment Bank.

It was back in February that a firm called Davenport & Co. raised its rating to “Buy” and the company’s investor site lists that Stifel Nicolaus also covers the company.  After the offering is completed, Jefferies, Citi, and UBS will all likely cover the senior living operator with formal analyst coverage.

It is very rare that a secondary offering alone creates a 20% drop in the price of stock without other news.  This is one offering which investors and traders alike will want to watch as it comes to fruition.  Investors who bought shares before today may feel like they were bitten by the company.  They should consider that the bite was only by someone with dentures.

JON C. OGG

We are reviewing events or ongoing news in shares of Automatic Data Processing Inc. (NYSE: ADP), CSX Corporation (NYSE: CSX), Five Star Quality Care Inc. (NYSE: FVE), Gilead Sciences, Inc. (NASDAQ: GILD), Live Nation Entertainment, Inc. (NYSE: LYV), Lululemon Athletica Inc. (NASDAQ: LULU), Rambus Inc. (NASDAQ: RMBS), Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN), Research-in-Motion Ltd. (NASDAQ: RIMM), SIRIUS XM Radio Inc. (NASDAQ: SIRI), Pandora Media Inc. (NYSE: P), Six Flags Entertainment Corp. (NYSE: SIX), and Valeant Pharmaceuticals International, Inc. (NYSE: VRX).

Inside each preview we have shown what the news or upcoming event is, given price indications, and added color on each if applicable.  Also, we had ten top analyst calls of the week that are carry-over events from last week and we also have a full detailed earnings calendar with previews for the top ten companies reporting earnings this coming week in separate articles.

Automatic Data Processing Inc. (NYSE: ADP) announced on Friday evening that its board of directors had raised its share buyback plan with an additional 35 million shares of common stock on top of about 15 million shares remaining under the previous buyback plan.  If executed entirely, this would be about 10% of its entire stock’s float.

CSX Corporation (NYSE: CSX) is set to split 3-for-1 on Thursday after it declared that split in early May.  This is one of the many pending and current splits, a trend we are seeing more of than we have in years. Shares closed at $73.48 Friday and the 52-week range is $46.51 to $80.42.

Five Star Quality Care Inc. (NYSE: FVE) is expected to have a secondary offering of up to 10 million shares mid-week, with all of the shares expected to be sold by the company.  Shares were pounded on the announcement of the deal with a drop from $7.20 before to $6.27 on the day of the news and then to close out the week at $6.10.  Its market cap is only about $220 million share its 52-week trading range is $2.72 to $8.95.

Gilead Sciences, Inc. (NASDAQ: GILD) disclosed a subpoena from the Department of Justice on Friday after the close, which included requests for documentation on testing of nearly all its products.  The wording also noted “criminal” on top of civil in the subpoena.  If Gilead was Lucille Ball, it would have “splaining” to do.  Surprisingly, shares were only down a little more than 2% at $39.40 after the close on the news. Its 52-week range is $31.73 to $42.93.

Live Nation Entertainment, Inc. (NYSE: LYV) was up 6% Friday on word that Liberty’s John Malone and Live Nation CEO Irving Azoff were in talks to possibly take Live Nation private.  At $10.92, its 52-week trading range is $8.17 to $12.48, but this stock stalled out at $16.00 in April-2010 and has been dead since.

Jon C. Ogg
October 26, 2007

Jon C. Ogg
July 10, 2007