False Alarm at Manor Care

Elliot Schlang, of Cleveland investment firm Lynch, Jones & Ryan, has turned even more bullish on nursing home chain Manor Care (HCR ) as its stock weakened--from 26 in early May to 19. He thinks Manor, the largest for-profit U.S. provider of long-term care, skilled nursing, and rehabilitative services, has become more enticing at its low price: "With the market's current mistrust of large-cap companies because of Enron and WorldCom, Manor becomes a solid shelter," says Schlang, who owns shares. He thinks investors seeking companies with clean balance sheets and profitable operations in niche markets will find Manor attractive.

Part of its recent dip--from 20 to 18 on July 19--was due to a report by rival Beverly Enterprises, the largest U.S. operator of nursing homes and assisted-living centers, that it expected to take a big charge in the second quarter to cover liability claims in the prior year. Analysts such as Albert Rice of Merrill Lynch, however, say Beverly's situation has no direct bearing on Manor. In fact, he notes liability-insurance costs at Manor moved in a favorable direction in the first quarter. The costs were down from last year's, and the average claim dropped, says Rice, who owns shares. At 19, the stock is selling at 13.5 times Schlang's 2002 earnings estimate of $1.40 a share and 11.7 times his 2003 $1.62 forecast. His 12-month price target: 35.

Corrections and Clarifications In "False alarm at Manor Care" (Inside Wall Street, Aug. 5), analyst Albert Rice of Merrill Lynch was mistakenly identified as owning shares in Manor Care. He does not own shares in the company.

By Gene G. Marcial

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