Wednesday, April 15, 2009

LHC Group Inc (NASDAQ:LHCG): Colour on news

LHC Group Inc (NASDAQ:LHCG) is getting comments from RBC and Jefferies after details of a whistleblower lawsuit alleging improper Medicare billings circulate:

- Jefferies notes they expect a sharp sell-off in LHC this morning as details of a whistleblower lawsuit alleging improper Medicare billings circulate. While details of the lawsuit will likely cast an overhang on the stock, valuation is already low and there are near-term earnings and reimbursement catalysts that could drive shares higher.

Despite this setback, they believe that the stock is already excessively undervalued (especially given the company's solid outlook and likely near-term earnings and reimbursement catalysts), and would recommend buying the shares on what they expect will be an overblown sell-off today (especially if it falls below $18 or 8x P/E).

Maintains Buy and $28 tgt, would be aggressive buyers.

- RBC Capital notes that while this suit is likely to be dismissed, they believe it could have a negative impact on LHCG share.

Given the media attention and government's focus on the fraud, abuse, and lack of oversight in
the home health industry, allegations of fraud by a former employee adds to the negative overhang on the home health group and could open the door for the government to take a closer look at LHCG's compliance protocols. That said, there appear to be no indications of wrongdoing, and while they think it is possible this case could be dismissed with prejudice, the firm remains on the sidelines until there is further clarity regarding potential reimbursement changes.

Maintains SP rating.

Notablecalls: Disgruntled former employee cases usually offer buying oppy's. So, if youre willing to catch a falling knife LHCG is for you. $16 is the level to watch (not sure you get any decent fills there, though)

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