Odyssey Healthcare shares soar as 1Q profit beats Street

Shares of Odyssey rose $1.21, or 14 percent, to $9.88 in afternoon trading on triple average volume.

For the three months ended March 31, net income fell to $1.5 million, or 5 cents per share, from $3.7 million, or 11 cents per share, a year ago. But excluding divested operations and a Medicare liability cap charge, Odyssey earned $2.5 million, or 14 cents per share, compared to $3.9 million, or 12 cents, in the prior-year period.

Revenue rose 21 percent to $124.8 million from $103.4 million in the first quarter of 2007.

Analysts surveyed were expecting an adjusted profit of just 10 cents per share on revenue of $118.7 million.

Odyssey said the quarter's results were buoyed by an admissions increase of nearly 12 percent and initiatives to improve productivity and lower operating expenses. In addition, the company benefitted from contributions from VistaCare, which it acquired for $147.1 million during the quarter.

Odyssey revealed that it received notice on May 5 that the Department of Justice is conducting an investigation into allegations that VistaCare may have billed Medicare for services that were not necessary or performed as stated. Odyssey said it will comply with the agency's information request.

"While DOJ investigations are never good news, it is positive that investigation relates to business practices of an acquired business and not targeted specifically at Odyssey per se," noted Jeffries & Co. analyst Frank G. Morgan, who has a "Hold" rating and $9.75 price target on shares.

Deutsche Bank-North America analyst Darren Lehrich said that while there was only one month of VistaCare in the company's results, it appears this acquisition is coming on-line a bit stronger than expected, proving that the deal is a good combination.

But Lehrich said the DOJ investigation comes as a surprise, given that Odyssey did a thorough review of VistaCare's patient files to evaluate the company's clinical compliance.