Why Kindred Healthcare Shares Surged

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 long-term care services specialist Kindred Healthcare (NYS: KND) soared 24% on Wednesday after Medicaid said that it would increase payments to skilled nursing facilities by 1.9% in 2013.

So what: Kindred investors have suffered a steady beating ever since Medicaid decided to cut its 2012 payment rate to U.S. nursing homes by 11%, but the better-than-expected proposal for 2013 is quickly easing some of that pain. Not surprisingly, nursing home peers Select Medical (NYS: SEM) and Skilled Healthcare Group (NYS: SKH) are also rallying on the news.

Now what: Don't let today's pop keep you from looking into the stock. Today's announcement essentially adds far more visibility into Kindred's future earnings power and, more important, gives the company much more time to adjust to future rate cuts. Jumping onto a rally isn't exactly ideal, but given just how badly Kindred has been punished over the past year, today's surge might only be the beginning of a much larger bounce.

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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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