July 1 Update

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). This index is updated monthly.  See archived updates below.  If you would like to receive a monthly e-mail of this update, please e-mail us your name and e-mail address to  partners@stoneridgepartners.com.

Quote of the Month:

 “With the recent Supreme Court decision on health care, the home health industry is still front and center for cuts … but, bottom line, more people are going to be on the rolls in the long term.” Oppenheimer analyst Michael Wiederhorn

What an interesting month.  First we will review the results for the month of June (positive),  then we will dive into the effect the health care bill seems to be having on the public home care stocks.

For the month of June the S&P 500 gained 4%, a nice month, but our Stoneridge Partners Home Health Index (HH Index) did even better, coming in with a 5.6% gain, and now up 24.7% year to date (YTD).  What a pleasant change from two straight months of decline

There was however a wide divergence between the individual companies within the index.  Almost Family trailed with only a 0.5% gain while Gentiva led the pack, gaining 23.5%.  It is interesting to note however that last month Gentiva trailed the group with a hefty 32% drop.

All of these stocks are now up for the  year, with Almost Family leading the pack, up 34.7% YTD.

Our HH Index now sits at 14.67. The high was set in September, 2008 at 41.75.

Here are the results for the month of June and YTD:

Stock Price Change in %
5/31/12 6/30/12 Month YTD   
Almost Family 22.23 22.34 +0.5% +34.7%
Amedisys 10.97 12.45 +13.5% +14.1%
Gentiva 5.61 6.93 +23.5% +2.7%
LHC Group 16.75 16.96 +1.2% +32.2%
Home Health Index 13.89 14.67 +5.6% +24.7%
S&P 500 1310.33 1362.16 +4.0% +8.3%

We also note that Addus HealthCare’s stock now sits at 4.91, up a whopping 23.1% for the month and now up 37.5% YTD.  They are a public company (NASDAQ:ADUS), but not in our HH Index.

This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through June, 2012.

Note that by hovering your pointer over a spot, you will get the price at that point.

For the past decade, it’s been quite a ride, and we’ve been on that ride with you

 

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Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index through June, 2012.

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Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through June, 2012.

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HOT OFF THE PRESS: 

Hot off the press?  It  can’t get hotter than Thursday’s Supreme Court surprise decision on the Obama Health Care bill.

The Wall Street Journal immediately ran an article Friday morning, commenting on a drop in the home care stocks, but then, on Friday, the stocks somewhat came back.

Our index ended Wednesday at 14.8.

On Thursday, after the big announcement, our  HH Index dropped 4.3% to 14.1.

After Friday the index was back up to 14.7 for a 1% drop over the two days.

Meanwhile the S&P 500 had a spectacular Friday, and for that same two day period gained 2.3%.

The HH Index was down 1% while the S&P 500 was up 2.3%.  Certainly too short of a time period for any generalization, but interesting to note.  At first blush it would seem that, regarding home health, the new health care law has not been looked upon favorably by the investment community.

We spoke to some executives of larger agencies dealing primarily with Medicare, and there was a bit of a ho-hum, with Medicare reimbursement still up in the air.  Other than that it appears that there are pluses and minuses for home health and hospice.

On the plus side it looks like Medicaid roles will be increased.

On the minus side, the requirement for agencies with over 50 employees to provide health care will certainly be problematic for some agencies, esp. for private duty agencies where there are W-2 agencies competing with 1099 agencies and registries.

We also find it interesting that our association, The National Association for Home Care and Hospice (NAHC) immediately sent out an email with the following subject line: “NAHC Urges Advocates to Contact Congress: Health Care Advocates Hail Historic Supreme Court Ruling”.

Do they mean that if you are a health care advocate you are in favor of this law?

Please write us with your comments:  We are interested in your thoughts as to how this law will effect your business.  At the end of this column we have added a section for comments.  These can be sent anonymously.  The return email address can be left blank.  We are interested in what you have to say.

Information on The Partnership for Quality Home health Care:  A consortium of home health care providers including the large public companies and NAHC.

It was established in 2010 to work in partnership with government officials to ensure access to quality home healthcare services for all Americans. Representing more than 1,500 community- and hospital-based home healthcare agencies nationwide, the Partnership is dedicated to developing innovative reforms to improve the program integrity, quality, and efficiency of home healthcare for our nation’s seniors.

“The Partnership couldn’t be more aligned with the government to put controls in place that will be effective in impacting fraud and abuse”.  Check out there web site for updated information:

http://www.homehealth4america.org/about-us

MERGER & ACQUISITION ACTIVITY

For another month there have been no announcements from these public companies regarding any acquisition activity at all.

We believe this will soon change as there has been very little in the way of organic growth among these public companies.  We believe that acquisitions are an engine that can and will provide growth!

Here at Stoneridge Partners we are now seeing more acquisition activity coming from private equity rather than the public companies.

Announcements in the news:

Genesis HealthCare announced its acquisition of Sun Healthcare Group, Inc.  The transaction price announced is$8.50 per share of common stock resulting in a transaction value of approximately $275 million, a 43.1% premium over the price of the stock at the time of the announcement.

Arcadia Services, Inc. has gone through a stock transfer with a newly formed Holding company, Arcadia Holdings II, Inc. With Comerica as the senior lender, Arcadia Services now finds itself under new ownership. The new CEO, John Elliott, has returned after five years to resume operations, focusing on the home care and staffing industry. The stock transfer has allowed Arcadia Services to become a privately owned company once again. Mr. Elliott plans to rebuild momentum lost over the past few years through focus on the

EBITDA Multiples:  Multiples of EBITDA from earnings results through the 1st quarter 2012 with stock prices as of June 30, 2012.

Company Multiple of EBITDA
Almost Family 5.4
Amedisys 2.4
Gentiva 1.1

A Favorite Cartoon:

Grrrr                                                                            Grrrrr is not a word

 

A Repeat of a Favorite Cartoon:

 

Cartoon Expression

And for additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly: stoneridgepartners.com/blog 

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

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