RBC downgrade RBC Dominion Securities downgraded Extendicare Inc. to "sector perform" from "outperform" after the largest long-term care provider in North America slashed its dividend by 43 per cent.
The action to cut the monthly dividend to 4 cents from 7 cents suggests the challenging economic and funding environment is getting worse, said RBC analyst Neil Downey.
"EXE has been operating in a challenging economic and funding environment for some time. Q4/12 US skilled nursing facility occupancy of about 84 per cent is at the very low-end of a seven-year slide, from about 92 per cent in Q1/06," Mr. Downey said in a research note. "And reimbursement has been under pressure with sequestration, caps on therapy, and a looming Medicare Part “B” reduction (effective Jan-14). The foregoing are known factors, yet today’s move to preserve cash suggests that things are worse than expected."
Meanwhile, the company's high operating leverage and elevated financial leverage means even small changes in revenue can have a big impact on the bottom line, he said.
Target: Mr. Downey cut his price target to $6.25 from $8.50. The average target is $6.92.
======