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Rennova Health Inc (NASDAQ:RNVA)'s Shift In To Healthcare Facility Management Is A Potential Upside Driver

Rennova Health Inc (NASDAQ:RNVA)'s Shift In To Healthcare Facility Management Is A Potential Upside Driver
Written by
Chris Sandburg
Published on
January 12, 2017
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When Rennova Health Inc (NASDAQ:RNVA) announced mid December that it was pricing a public offering, the company took a considerable hit. Throughout the latter half of the month, and into early 2017, this decline continued. Late this week, however, Rennova started to run. The company currently sits around 36% higher on its year-to-date open, and on the back of a spike in volume, looks set to gain further strength as the week draws to a close.So what's behind the gains?A couple of things are driving the momentum, but before we get into the detail, let's outline the company and its operations.Rennova kicked things off as diagnostics company in the substance abuse space. It was (and still is) a company that provides tests for urine and blood samples. Over the past 12 months, however, the company has expanded its operations and – in management's words – attempt to secure more stable and recurring revenues.A major step forward, and one that is probably driving the current upside momentum more than any other, is the acquisition of a rural hospital out of Chapter 11. That doesn't sound like too big a deal right off the bat, but given this company's current sales, and market capitalization, and then taking these in consideration with (albeit unaudited) 2015 revenues of the hospital it now owns, it looks as though the acquisition is going to make a considerable difference to the top line.We first got word of the potential acquisition mid last year, when Rennova announced that it had put in a bid to secure the assets of a facility that had previously entered bankruptcy. At that point, however, there were a number of other bidders, and the company was unable to put forward any prediction as to whether it's own bid was likely to be successful or not. Further, it didn't reveal the scale of the bid, or its implications. Fast-forward to the end of December, and Rennova put out a press release announcing that it was set to acquire the assets of a facility called Scott Community Hospital – the facility alluded to earlier last year by the company, illustrating the fact that Rennova beat out the other bidders.The deal looks like this:In total, Rennova will pay $1 million to acquire the facility. This includes $400,000 to a local bank which has a lien on the property as things stand. The Bankruptcy Court ruled on the sale on December 23, effectively closing it in Rennova's favor, and final closing of the purchase is expected to take place early this month (read: over the next week or so).It's a 25 bed facility with operating rooms, a laboratory and an emergency room, and includes a 52,000 sq. ft. hospital building and 6,300 sq. ft. professional building on approximately 4.3 acres.For $1 million, that looks like a steal.It becomes even more attractive, when you take into consideration what the facility was generating before it went into bankruptcy protection. In line with the above-mentioned 2015 financials, and again, these are unaudited, the hospital generated $12 million annually during that year. Rennova believes it can emulate these revenues consistently and reliably once the facility is up and running again, and the company is targeting a part reopening during the second quarter of 2017, and a full-scale reopening during the third quarter of this year.In addition, and as a further growth driver throughout 2017, Rennova is now full owner of diagnostic entity Genomas, a company with a solid portfolio of diagnostics technology that fits seamlessly into the current portfolio of Rennova.There are a few key points here.This is a company that only generated $290,000 during the third quarter of 2016, and is currently valued at less than $10 million. By the end of this year, it should have a fully functional rural medical facility functioning, that has the potential (and should realistically be able) to generate $12 million annual top line. It has also just dramatically expanded its product portfolio by way of the Genomas acquisition, and has plenty of cash on hand on the back of its recent offering.There is something of a reverse split risk, if Rennova is unable to boost its price above minimum bid. If things keep going up as they have the last few days, however, this risk should quickly dissipate.We will be updating our subscribers as soon as we know more. For the latest updates on RNVA, sign up below!Disclosure: We have no position in RNVA and have not been compensated for this article.

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