September Update

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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:

 “You’re bored with politics?  Kid, right now is when it gets interesting.” Peggy Noonan, Wall Street Journal

Isn’t that the truth as the Republicans join the battle, and the Democrats get ready for Charlotte.  We note that Mitt Romney will be speaking at NAHC’s annual October conference in Orlando.  www.nahc.org

The S&P 500, after gaining  a very respectable 1.3% in July, followed  up with a 2% gain in August, and now is up close to 12% for the year.

The Stoneridge Partners Home Health Index did much better, jumping close to 10% for the month,  now up 37% for the year.

This past month however belonged to Gentiva, who’s stock price jumped from $6.66 to $10.98….an impressive 65% increase in just one month.  This came on the heels of their Q2 earnings announcement, where they exceeded analysts’ expectations.

Our HH Index is  now sitting at 16.14.  The high was set in September, 2008 at 41.75.

The only stock in the HH Index that was down in August was LHC Group.  Gentiva now has the greatest percentage gain for the year.

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

Stock Price Change in %
7/31/12 8/31/12 Month YTD   
Almost Family 22.01 22.08 +0.32% +33.17%
Amedisys 12.19 14.08 +15.50% +29.06%
Gentiva 6.66 10.98 +64.86% +62.67%
LHC Group 17.89 17.40 -2.74% +35.62%
Home Health Index 14.66 16.14 +9.86% +37.11%
Gentiva 6.66 10.98 +64.86% +62.67%
LHC Group 17.89 17.40 -2.74% +35.62%
Home Health Index 14.66 16.14 +9.86% +37.11%
S&P 500 1362.16 1379.32 +1.26% +9.68%

We also note that on September 1  Addus HealthCare’s stock sat at 4.87, up 10% for the month and up 36% for the year.  They are a public company (NASDAQ:ADUS), but not in our HH Index.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through August, 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

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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 August, 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 July, 2012.  Note the nice pop in the Gentiva stock.

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EARNINGS SEASON – BY THE NUMBERS:
Revenue and gross margin for all four companies, 2nd quarter 2012 compared to second quarter 2011.  Struggling for growth.

 in thousands Q2 2011 Q2 2012 Difference Difference
Amedisys Revenue   368,424   378,498 10,074 2.7%
Gross Margin   178,998   166,232 (12,766) (7.1%)
% Gross Margin     48.6%     43.9%
Almost Family Revenue    81,721    86,892 5,171 6.3%
Gross Margin    42,106    41,554 (552) -1.3%
% Gross Margin     51.5%    47.8%
LHC Group Revenue   161,015   158,055 (2,960) (1.8%)
Gross Margin    74,999     65,837 (9,162) (12.2%)
% Gross Margin     46.6%     41.7%
Gentiva Revenue   448,712   427,691 (21,021) (4.7%)
Gross Margin   214,561   204,954 (9,607) (4.5%)
% Gross Margin     47.8%     47.9%
TOTALS Total HHI Revenue 1,059,872 1,051,136 (8,736) (0.8%
Total HHI Gross Margin   510,664   478,577 (32,087) (6.3%)
% Gross Margin      48.2%      45.5% (2.7%)

REVENUE DOWN:  Total revenue  was down 0.8%, and, in gross profit dollars, it was even worse….down over $32 million or 2.7%.

We note that  total gross profit margin dropped 5.6%….from 48.2% to 45.5%.  Only Gentiva showed an increase in % margin.  At 47.9% they also had the highest GP margin.

Every company was down in gross profit dollars.

One year ago our Home Health Index was at $16.08.  Today it sits at $16.14.

Addus’ 2nd quarter revenue was 70.3 million, up 3% over last year’s 2nd quarter.  They were also up slightly in gross profit dollars, +1.5%.

Merger and Acquisition Activity

Gentiva:  Gentiva announced its acquisition of Family Home Care, based in Spokane, Washington.

CareSouth: Augusta, Georgia based CaresSouth Health Systems acquired Boynton Beach, Florida based Alliance Care along with eleven Florida locations.

Kindred:  Louisville, Kentucky based Kindred Health Care Systems (NYSE) finalized their acquisition of IntegraCare Holdings with 47 locations throughout Texas.

  • Purchase Price:  $71 million plus a potential of another $4 million earnout.
  • Revenue: $71 million
  • EBITDA: $9 million
  • Expected synergies: $1.5 million

VNA of Greater Philadelphia, in an interesting transaction, acquired a house call physician practice known as Home Visit Doctors.  Price and terms were not announced, however we can’t help but wonder if the future will hold more such transactions.

Innovative Home Health, a Medicare agency in Lawton, Oklahoma sold  to a large regional home care provider.  Cory Mertz, one of our partners, handled the sale representing the Seller.

We believe that this trend in acquisition activity will continue. As our chart above shows, there has been no growth among these public home care companies.  Acquisitions will become the driving force toward future growth.

EBITDA Multiples: 

Multiples of EBITDA from earning results through the 2nd quarter 2012 with stock prices as of August 31, 2012.

Company Multiple of EBITDA
Almost Family 5.7
Amedisys 3.5
Gentiva 1.9

We would be interested in your comments. 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, or acquisitions that you know about.

A Favorite Cartoon:   Every month “The New Yorker” has a contest to create a caption for one of their cartoons.  This month’s contest was:

Winning Caption
Think about this for a moment before reading further.

The winning caption was:

“Could you go back to the front desk, the receptionist has some forms for you to fill out.”  Won by Adam Hackbarth, O’Fallon, MO

 

A repeat of a Favorite Cartoon: “To tax and to please, no more than to love and be wise, is not given to man.” Edmund Burke

 

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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