Sun Healthcare Group: House of the reprising sun

If the market’s recent spate of rainy days and fears of recession have made you a little pale, then a bit of sun from the health-care sector might do you some good.

Sun Healthcare Group, Inc. (Nasdaq: SUNH) has been consistently beating consensus estimates over the past year and has seen its share price climb steadily despite the overall market slowdown that began last summer. What’s more, many analysts are predicting increased revenue growth for the company and unrelenting demand for the sector’s services — come rain or recession.

Through its subsidiaries, the Irvine, Calif.-based company operates long-term as well as post-acute inpatient nursing home facilities and offers skilled nursing, rehabilitation therapy, and specialized care for mental health and Alzheimer’s patients. Sun also has a physical and occupational therapy unit and a profitable health-care staffing unit.

The $725 million company currently manages 213 facilities in 25 states and earns the lion’s share of its revenues from a stable flow of Medicare and Medicaid reimbursements. This reliance on federal reimbursements, coupled with growing demand for its services from the increasing population of seniors over 65, make it one of the more “recession-resistant” health-care business models out there, Bear Stearns analyst Jason Gurda recently told SmallCapInvestor.com.

Sun’s current revenue growth focus is on expanding margins by controlling costs and catering to newly added Medicare reimbursement categories for rehab services, which generate more money per patient day and provide higher bed turnover than the longer-term stays of Medicaid patients.

Gurda explained that the category changes were made to push reimbursed surgical rehab services out of hospitals and into lower-cost skilled nursing centers. Sun, like many of its peers (which include Skilled Healthcare Group Inc. (NYSE: SKH) and Brookdale Senior Living Inc. (NYSE: BKD), jumped at the opportunity and adapted its business by adding just such rehab bed space.

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