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Nursing homes and Wall Street.

While the Dow Jones index of 30 industrial stocks has risen by 6 percent since our last column in the March/April issue, nursing home stocks have fallen by an average of 11 percent. Most issues have declined, with Horizon Healthcare dropping by 40 percent, from $10 per share to $6 per share, even though earnings have risen. National Health Corp. fell by 20 percent. The major companies, including Beverly Enterprises, Health Care and Retirement Corp. (HCR), Living Centers of America and Manor Care, fell modestly.

The decline m the nursing home group can be related to the plummeting prices of biotech and pharmaceutical stocks. The pharmaceutical group soared in December 1991, with the publicity surrounding several "miracle" drugs, including Merck's anti-cholesterol agent Mevacor and Glaxo's Imigran, its answer to the migraine headache. However, in recent weeks, Wall Street has become bearish on the outlook for several reasons, including publicity on cost containment by the Federal Government, severe competition in new drugs possibly unit sales of drugs. to 20 percent declines since January.

On top of the investor disenchantment with health care, which also affected the nursing home group, earnings per share of some of the companies were lower. In most cases, total earnings were up,but per share earnings were down because cause of increases in shares outstanding. This was apparent for Health and Rehabilitation Properties. In the case of National Health Corp., the company spun off its nursing homes into a REIR and the resulting earnings report in the press showed a decline. However, operating earnings for the company were higher. The Horizon Group also showed a sizeable increase for the first quarter, with earnings reported at $0.10 per share compared to $0.06 a year ago, even after a sharp increase in shares outstanding.

This vulnerability of the health care group may be related to the high price earnings multiple. Several stocks were priced at over 20 times expected 1992 earnings earlier in the year. Since then the group has come under pressure and multiples have fallen. The high- multiple stocks include Beverly Enterprises, GranCare and Manor Care, which are among the leading companies.

New Issues: Living

Centers of America

On February 13th, Living Centers of America, symbol LCA, made its debut on the New York Stock Exchange. It was formerly ARA Living Centers, Inc., wholly owned by the ARA Group. The stock was sold at $14.50 per share, and is currently priced close to that level. The company sold approximately 8.6 million shares, totaling over $125 million, with $105 million going to the selling shareholder, the ARA Group.

The company is the fourth largest operator of nursing homes, with 211 centers and over 19,000 beds. Its overall occupancy rate is 81% and its private pay ratio is 25%, with Medicaid at 67% (in the December quarter).

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Article Details
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Title Annotation:Publisher's Forum
Author:Stupay, Arthur M.
Publication:Nursing Homes
Article Type:Column
Date:May 1, 1992
Previous Article:Trends shaping the nursing home environment.
Next Article:'Mr. Nice' and 'Mr. Tough'.

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