SUNH- Sun Healthcare

[eclecticvalue]

I started a position in this stock before the spinoff. Afterwards it spunoff into SBRA and SUNH. SUNH is still interesting because it has a book value of around $28. It is currently trading at around $14.50. So I was wondering why is there a disparity between the bookvalue and market price? Is it because of the uncertainty of health care legislature or it may not get paid by the government.

[Munger_Disciple]

The tangible book value is approx. $20 per share less than the quoted book. There are a lot of BS assets (goodwill, intangibles, deferred asset charges) on the balance sheet. You should also give a haircut to PPE, to arrive at a more realistic figure for the book.

[eclecticvalue]

Thanks for the explanation sreenr. The gap between book and market price was ridiculous. Now it makes more sense. Also what do you think of the valuation and the intrinsic value?

[Munger_Disciple]

Also what do you think of the valuation and the intrinsic value?

 

I don't know much about this company, but I think there is not enough Margin of Safety given all the upcoming changes to health care in the US. As I pointed out, it is not a cheap net-net Ben Graham stock.

[JSArbitrage]

CMS's 11% cuts for SNF's has crushed the sector and this stock.  It was down >50% in one day.  The CMS final rule took everyone by surprise.  According to the conference call, they have no room for renegotiations with Sabra either.  Doesn't look good for SUNH and we might see a restructuring in the next 1-3 years.

[Kraven]

I've taken a quick look at this one.  I don't even pretend it's anywhere near my circle of competence, but it looks interesting here.  The doomsday reports on SUNH as a result of the CMS 11% cut don't seem to square with the numbers, although I could be (and probably am) missing something very large.  Medicare is about 35% of SUNH's revenues so an 11% cut is about 3-4% of total revenues.  Everything else being equal (which it never is), this would bring their revenues back to around where they were a couple years ago.  As of now, prior to the cut which goes into effect later in the year, they are selling around 2x or so earnings.  They are also well below TBV now.  What am I missing?

[eclecticvalue]

I got out of this one awhile back and made 30% from selling both SUNH and SBRA. I wasn't really confident in the prospects. Unfortunately Kraven I can't help you out with your question.