November 1st 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.
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Quote of the Month

“A house divided against itself cannot stand”

– Abraham Lincoln, 1858, years prior to the Civil War.  Spoken in the Lincoln/Douglas debates during his unsuccessful bid for the Senate. Two years later he became President, and the divided house did not stand.

UPDATE:  For the month of October the Stoneridge Partners Home Health Index drops 9.6%.

Although the S&P 500 was up 2.4% in September it dropped 2% in October and is now up a little over 12% for the year.  Our  Stoneridge Partners Home Health Index was up 0.5% in September but fell back 9.6% in October.

Although our Index is now up 24.6% for the year, that entire increase took place in the first quarter.  The only stock in our index that is up since April 1, 2012 is Gentiva;  the other three are all down.  On April 1, 2012 the HH Index was at 16.93 and on November 1 it was at 14.67.

All four stocks were down in October with Amedisys leading the downward charge, off over 20%

The high for our Index was set in September, 2008 at 41.75.  Since then a huge drop.  Take a quick look below the graphs at the change in gross profit.  It will provide a clue as to the reason for this drop.

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

Company Stock Price 9/30/12 Stock Price 10/31/12 Change in % Month (Dismal) Change in % YTD
Almost Family 21.28 20.73 -2.58% +25.03%
Amedisys 13.82 11.04 -20.12% +1.19%
Gentiva 11.32 9.37 -17.23% +38.8%
LHC Group 18.47 17.52 -5.14% +36.55%
Home Health Index 16.22 14.67 -9.6% +24.6%
S&P 500 1440.67 1412.16 -1.98% +12.29%

We also note that on November  1 Addus HealthCare’s stock was at 5.43 up 1.5% for the month.  This follows an increase of 10% last month.  They are now up over 50% for the year.  Impressive. 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 October, 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 October, 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 October, 2012.  Note the nice pop in the Gentiva stock.

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EARNINGS SEASON – Coming up in November will be the results from the third quarter.  In next month’s newsletter we will have a complete report.  Meanwhile we thought it might be interesting to compare gross profit percentages for the 2nd quarter 2012 to 2nd quarter 2010 (the good old days).

When adding up the gross profit for all four public companies in our index for 2nd quarter 2010 and 2012

Quarter Profit %
Gross Profit – 2nd quarter 2010 54.4%
Gross Profit – 2nd quarter 2012 45.5%
Difference -8.9%

It looks like the current revenue run-rate for the four public companies is about $4.3 billion.  A loss of 8.9% of gross profit works out to a loss of annual gross profit dollars of about $382 million.  Something to think about.

MERGER & ACQUISITION ACTIVITY FOR THE MONTH

Nurse-On-Call (NOC):  In a surprise, Emeritus Corporation – Senior Living, the nations largest assisted living and memory care services company, announced that they have entered into an agreement to purchase 91% of Florida’s Nurse-On-Call for $102 million.  Dale Clift, the CEO, will remain a stockholder and continue in his position as CEO.

NOC operates 28 offices in 47 Florida counties.    Revenue is approx. $140 million with an EBITDA of approx. $17 million.

It is interesting to note that we originally brokered the sale of NOC to Dale Clift toward the end of year 2003.  At that time it was a troubled agency, and was going to have difficulty making its Friday payroll.  Dale visited with the owner on Thursday and closed on the transaction the next day.  Done Deal!

The Purchase price was primarily an assumption of debt.  Dale made payroll from his money market account.  Revenue at the time was about $2.5 million.  A nine year trip to $140 million.

Victory goes to the bold.  Congratulations Dale.

Celtic & The Washington Post:  Last month we were taken by surprise when the Post announced their acquisition of  Celtic Healthcare, a $43  million revenue, Pennsylvania based home care and hospice company.  Celtic was founded in 1996 by Arnie Burchianti.

We had the pleasure of speaking with Arnie at last month’s NAHC conference.  He said that the primary reason he decided to go with the Post was that Berkshire Hathaway is a large investor in the Post, and that they take a long term outlook on their businesses…..which was exactly what he was looking for.  He did not want to sellout 100% to a strategic, neither did he  want to sell a majority to a private equity group, only to be forced to sell five years down the road.  As Arnie said….he was looking for a needle in the haystack, and he found it.

Although the Washington Post holds a majority share, Arnie remains a stockholder and CEO.

Allied Health Care Corporation, with Florida Medicare home health agencies in Broward, Palm Beach, and Martin/St. Lucie counties, was merged into Oklahoma based Carter Health Care.  We provided representation to the Sellers.  Congratulations to Carol Brafman and Ron Kaplan for building such a fine organization.

Henry Ford Health System, Beaumont plan to merge.  After much speculation, Beaumont Health System, Royal Oak, Michigan, and Henry Ford System, Detroit have signed a Letter of Intent to merge, creating a new not-for-profit system with eight hospitals in SE Michigan.

These are just a start:  We believe that there will be a continuing trend in increased acquisition activity.  As the numbers state, there has been little  growth among these public home care companies.  We believe that 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 October 31, 2012.  Gentiva’s EBITDA is through the 3rd quarter.

Company Multiple of EBITDA
Almost Family 5.4
Amedisys 2.8
Gentiva 1.8

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.

WEBINAR:  This past month we held a webinar on the process of selling a home health agency or hospice.  We were very pleased with the attendance and the positive feed-back.  In January we will be giving another webinar on Building the Value of a Home Health Agency.  You will be sent details….look for them.

A Favorite Cartoon: 

  cat Voucher

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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