Home Health Index

WE ARE PLEASE TO INTRODUCE
THE STONERIDGE PARTNERS HOME HEALTH INDEX

March, 2010

This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). We will be updating this index monthly.  See February, 2010 update below.

Our HH Index begins in the year 2002, and shows a clear trend of growth. Through February, 2010 the S&P 500 is actually down by 5%, while our HH Index has increased by over 400%.

This first graph shows the HH index compared to the actual prices of the individual companies that make up the chart through February, 2010.

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index through February 2010.

The last twelve months however tells another story. In February 2009, President Obama announced his health care initiative which set a target of $39 billion in Medicare cuts to the home health industry over a ten-year period. In response, our Home Health Index plummeted 45%. With that uncertainty in future Medicare reimbursement, 2009 turned out to be a very challenging year for M&A activity. Buyers became more conservative, valuations dropped, and there was a marked slow-down in transactions.

Although future reimbursement still remains a question, buyer sentiment has significantly improved, and we are seeing a rebound in valuations. This correlates with our index, which has recovered substantially all of its loss.

What follows is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart.

We feel that there is now a pent-up demand from strategic buyers, who are hungry for accretive acquisitions in order to bolster growth. Financing also appears to be loosening up, bringing private equity groups back into the mix of potential acquirers.

From the seller’s viewpoint, the possible expiration of the advantageous 15% capital gains rate in 2011 may add to their readiness to look at a sale in 2010.

With both increased consolidation activity from strategic buyers, and a renewed interest from private equity groups, we expect that 2010 will show a marked improvement in M&A activity in the home heath market.

UPDATE: February Results

For the month of February the S&P 500 was up 2.8% while the Home Health Index was up 2.6%.

Percentage change in stock prices for these public companies for the month follows:

Almost Family	-0.83%
Amedisys	+4.91%
Gentiva	+8.54%
LHC Group	+2.24%

Based upon the earning results from three of these companies for 2009 and stock prices,  the multiple of EBITDA that they were trading at as of February 26 are as follows:

Almost Family	7.23
Amedisys	6.23
Gentiva	6.56

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group