Raymond James Cuts Sunrise Assisted to Underperform

Analyst James Kumpel thinks a deal with Marriott Senior Living would push the company far beyond traditional assisted living services

Raymond James downgraded Sunrise Assisted Living (SRZ ) to underperform from market perform.

On Monday the company said it was in talks with Marriott International about the purchase of Marriott Senior Living Services, a unit of Marriott International.

Analyst James Kumpel says he downgraded Sunrise for many reasons. First, he says the Sunrise's interest in buying Marriott Senior Living reminds him of when Sunrise pursued a "bad" deal with Karrington four years ago. He's also concerned that a deal with Marriott Senior Living would expose Sunrise to independent living and skilled nursing operations, which diverges from its more traditonal model that is focused on assisted living.

Furthermore, Kumpel says Sunrise is near the top of a two-year $20-$30 trading range, and is trading at a 36% premium to a generous sum-of-parts valuation of $20.55. Finally, he thinks Sunrise's net management profits are up just 13% since the fourth quarter of 2000, despite the tripling of management fees.

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