Mad Money

Cramer Sends Investors to Rehab

“The worst is now over in health care,” Cramer said during Thursday’s Mad Money.

Time for Rehab?

When the Senate is done with the already House-approved bill, he said, President Obama’s intended reforms will either “die a slow, Republican-assisted death” in the upper chamber or be “so watered down” that they can’t possibly hurt the sector’s companies.

This seeming all-clear signal means that investors can buy RehabCare Group – a company that earns 70% of its revenues from Medicare, mind you – on any pullback, Cramer said.

RehabCare is the largest independent operator of contract rehabilitation services in skilled nursing facilities and acute-care hospitals. Cramer likes this latter division the most, and RHB’s merger with Triumph Healthcare makes the newly combined company the number-two play in the business.

Acute care is big business because the treatment of respiratory failure, serious trauma and heart problems or neuromuscular disorders requires expensive procedures. And the government would most likely never cut funding for them. Also, Congress three years ago put a moratorium on building new long-term acute-care hospitals and in exchange promised not to cut Medicare reimbursement rates for the industry. Now there’s no reason for RehabCare to worry about competition, and reimbursement rates are expected to rise 2% in 2010.

The $570 million acquisition of Triumph should expand the company’s revenue base by 50% and increase earnings by 35% next year. And that’s despite of RehabCare’s recent $130 million secondary offering.

RHB has enjoyed a big run, up to less than $1 from its 52-week high, but Cramer thinks the stock is still cheap given the Triumph deal. Now that Wall Street’s big money managers know about RehabCare, thanks to that secondary, Cramer predicted the share price could climb to $33.25 from its Thursday close of $26.80.

And “I think I’m being conservative” with that price target, Cramer said.

Call Cramer: 1-800-743-CNBC

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