HealthSouth Shares Got Crushed: What You Need to Know


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of inpatient rehab services provider HealthSouth (NYS: HLS) plunged 15% in intraday trading today on fears over the potential effect of President Barack Obama's deficit reduction plan.

So what: According to Wall Street analysts, Obama's plan to slash $73 billion from the Medicaid program could, in turn, cut HealthSouth's earnings by as much as 20% over the next couple of years. Not surprisingly, the stock is hitting a new 52-week low on the news and is down roughly 40% over the past three months alone.

Now what: I wouldn't be so quick to pounce on today's plunge. The political uncertainty should continue to weigh heavily on HealthSouth's shares over the next few months, and given the company's heavy debt load, it's not exactly an ideal long-term pick either. HealthSouth will have to slow down on its growth initiatives whether Obama's cuts are implemented in the near future or not, so staying on the sidelines seems prudent.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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