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Value Line has initiated coverage of HealthSouth Corporation (HLS)in its flagship product, The Value Line Investment Survey. It is the nation’s largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated and discharged, revenues, and number of hospitals. While the company’s national network of inpatient hospitals stretches across 27 states and Puerto Rico, they are concentrated in the eastern half of the United States and Texas. 

HealthSouth’s medical centers offer specialized rehabilitative care across a wide array of diagnoses, while delivering comprehensive, high-quality, and cost-effective patient care services. The majority of patients it serves experience significant physical and cognitive disabilities due to medical conditions, including neurological disorders, strokes, hip fractures, head injuries, and spinal cord injuries. These conditions generally require rehabilitative healthcare services in an inpatient setting. The healthcare provider’s team of highly skilled nurses and physical, occupational, and speech therapists utilize proven technology and clinical protocols with the objective of returning patients to home and work. Patient care is provided by nursing and therapy staff as directed by physician orders. In addition, case managers monitor each patient’s progress and provide documentation and oversight of patient status, achievement of goals, discharge planning, and functional outcomes. The company’s hospitals specialize in a comprehensive interdisciplinary clinical approach to treatment that it thinks will lead to a higher level of care and superior outcomes.

The inpatient rehabilitation industry is highly fragmented. Furthermore, HLS maintains that at present it has no single, similar direct competitor. HealthSouth’s inpatient rehabilitation centers compete primarily with rehabilitation units, many of which are within acute care hospitals. Smaller, privately held companies square off against the business only in select markets in Texas and the Western Region. Too, there are public companies that largely own long-term acute care hospitals, but manage several inpatient rehabilitation facilities as well. Other providers of post-acute care services may attempt to become direct competition in the future. For example, over the past few years, the number of nursing homes marketing themselves as offering certain rehabilitation services has increased, even though nursing homes are not required to offer the same level of care, or be licensed as hospitals. The primary competitive factors in any given market include the quality of care and service provided, the treatment outcomes achieved, and the presence of physician-owned providers. However, the previously enacted ban on new, or expansion of existing, physician-owned hospitals should limit to some degree that item going forward.

This stock has been on a roll this year. It appears a combination of solid share-net advances and volume growth are greatly responsible for the stock’s more-than-60% climb over the past 12 months. Although Medicare reimbursement cuts and regulatory concerns may cause a bit of turbulence ahead, the company’s healthy operating leverage and strong footprint ought to allow for decent top- and bottom-line gains in future quarters. What’s more, HealthSouth’s decent dividend yield and recently announced $200 million stock repurchase program could further peak investors’ interest.

All told, subscribers interested in this inpatient rehabilitation services provider are advised to consult Value Line’s quarterly reports for HealthSouth Corporation, as well as any supplemental reports and relevant articles as important news items arise.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.