Reinstatement to the NYSE and a resolution of primary claims with the Department of Justice demonstrate, in our opinion, that the company has made significant progress in addressing problems of the recent past.
We regard the recent divestment of the company's surgery, outpatient rehab, and diagnostic divisions, as positive for the strategic re-focusing of management efforts, and the reduction of company's high debt levels. In addition, and despite Medicare issues, we believe pure-play status will boost longer-term earnings prospects given the company's leading market share in inpatient rehabilitation facility.
HLS currently derives approximately 66% of consolidated net operating revenues from Medicare. Notwithstanding the substantial level of long-term debt on the balance sheet which currently stands at approximately $2 billion, and the need to meet near term cash obligations resulting from recent settlements, the company's earnings are highly vulnerable to changes in reimbursement rates. Our Hold recommendation remains intact at current levels pending the release of second-quarter results.
We have valued HLS on an EV/EBITDA basis, as well as a comparison to similar firms in the specialty services sub-sector of healthcare. Our $17.50 price target is derived using a projected 2008 adjusted EBITDA of $320 million and EV/EBITDA multiple of 11x, adjusted for shares outstanding.
Edison Int'l Outlook Bullish
Consistent projected core earnings growth throughout 2008-09, driven by improved performance in unregulated power generation and energy trading, a solid base of stable utility operations, higher price realizations, ongoing alternative energy projects, balance sheet strength and a relatively cheap earnings-based valuation collectively support our bullish outlook for Edison International (EIX).
Accordingly, we maintain our Buy recommendation on EIX common stock with a six-month target price of $53.50. Price appreciation to our near-term valuation, coupled with the stock's recently increased $0.305 per share quarterly dividend which we view as very sustainable and secure given low projected payouts represents annualized total return potential of 25.4%.
With expectations of continued stable earnings with above average long-term growth expectations, we feel that EIX ought to trade at a premium to comparable public companies. We set a six-month target price of $53.50, or 13.5x our current-year 2008 EPS estimate and 11.7x our forward 2009 EPS estimate.
Price appreciation to our near-term valuation, coupled with the stock's recently increased $0.305 per share quarterly dividend deemed to be sustainable and secure based upon the recent dividend increase and very reasonable projected payout ratios represents annualized total return potential of 25.4%.
