May 1st 2013 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:

“Chemed and VITAS intend to defend this lawsuit vigorously.”

This in response to the False Claims Act complaint filed by the federal government alleging that the Company submitted or caused the submission of false claims to the Medicare program.

UPDATE:  The Stoneridge Partners Home Health Index Drops Again!

While the stock market in general continued its tear with the S&P 500 showing a very nice year-to-date increase of over 12% our Stoneridge Partners’ Home Health Index (HH Index) dropped 2% in April and is now down 0.8% year-to-date.

A good part of April’s drop can be attributed to one stock, Amedisys, whose end of the month earnings call resulted in a price drop of 11%….. now down to ten dollars,  a place this company has not visited since the year 2003….back to where it was ten years ago.  Is it a buy?  More on this later in this column.

The high for our HH Index was set in September, 2008 at 41.75, and then, within five months it dropped to $21.  It now sits at $15.50, down 63%.  As a comparison, during this same time period the S&P 500 is up about 75%.  We note that only LHC Group was up for the month, and only Gentiva is up YTD.

Addus HealthCare, because they have very little Medicare revenue, is not included in our HH Index  (NASDAQ:ADUS).  Last month we discussed the meteoric rise of their stock…. up 65% YTD, but even they took a hit in April, down 11.4%.

Here are the results for our HH  Index:

Company Stock Price 4/30/13 Change in %,  Month Change in %,  YTD Stock Price 4/30/12 Change in %, year
Almost Family 19.74 -3.50% -2.57% 24.38 -20.28%
Amedisys 10.04 -10.76% -11.23% 14.73 -36.50%
Gentiva 10.49 -3.15% +4.38% 8.28 +28.15%
LHC Group 21.72 +1.01% -0.32% 17.71 +23.56%
Home Health Index 15.50% -3.03% -2.24% 16.27 -5.13%
S&P 500 1597.57 +1.78% +12.02% 1397.91 +14.62%
Addus 11.84 -11.40% +65.59 4.62 +200.56%

It is also interesting to note that,  over the past year, Amedisys and Almost Family are down substantially, while LHC Group, Gentiva and Addus are all up substantially.

 GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through April, 2013.

Take a look at that green line of Amedisys.    Ouch!

(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 April, 2013.

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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 April, 2013.

 

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BALANCE SHEETS:  What follows is the summarized balance sheets for the year end 2012.

       in thousands Addus Almost Family Amedisys Gentiva LHC Group
ASSETS
Cash 1,737   26,120   14,545  207,052 9,720
Accounts Receivable 71,303   49,971 169,172  251,080 83,951
Other Assets 76,817 173,168 546,878 1,052,802 293,223
TOTAL ASSETS 149,857 249,259 730,595 1,510,934 386,894
LIABILITIES
Current Liabilities 39,190 27,098 204,787 289,899 55,210
Long-Term Liabilities 16,250 17,846  71,575 910,182
Other Liabilities   76,153 48,044
TOTAL LIABILITIES 55,440 44,944 276,362 1,276,234 103,254
STOCKHOLDERS’ EQUITY 94.417 204,315 454,233 233,162 268,181

Note:  The long term debt of Gentiva is primarily the result of their purchase of $1B hospice provider Odyssey in year 2010…..but now look at their nice cash position.

AMEDISYS: On April 30th Amedisys announced their first quarter results. While their total Medicare admissions were up 2%, their revenue dropped $32 million to $339 million, and their net income for the quarter dropped to $4 million compared to $8.6 million in 2012.

While Medicare admissions were up 2%, revenue per episode was down 3.5% to $2,782.

Hospice revenue declined 3.6%, down $2.5 million, mainly on lower average daily census.

They made note that the 2% sequestration cut impacted home health revenue for episodes in progress at quarter end.

In their call they also announced their intention to consolidate or divest 50 care centers…..what they term pruning the unprofitable.

We will have a complete run-down of first quarter numbers for these public companies in next month’s column

SEQUESTRATION: What we no longer seem to be hearing much about is the 2% sequestration cut that took place April 1.  Is anyone in Washington listening?  One thing for sure is that the salary and benefits of our congress people are not being affected one iota.

While 2% may appear to be a minor blip on the screen, unfortunately it results in a big hit to bottom line profits.  On a typical $5 million revenue agency with a 15% bottom line, if all expenses stay the same, it reduces that bottom line by $100,000 or 13.3%.  Attach a selling multiple of 5 to that and you have a potential decrease in selling price of $500,000.  Not exactly chump change.

MERGER & ACQUISITION ACTIVITY

Again, no announced acquisitions from these public companies.  To the contrary, as mentioned above, Amedisys plans on closing locations.

One acquisition of interest is the recent completion of Highmark and their West Penn transaction.

Highmark, a Pittsburgh based insurer closed on its acquisition of West Penn Allegheny Health System.  With this acquisition Highmark joins Kaiser Permanente as one of the nation’s largest private integrated systems with both insurance and hospital operations.

And we had a couple of nice transactions close last month:

Advanced Nursing Concepts, a nice Medicare certified home health agency in Florida was sold to a financial buyer.  Cory Mertz, one of our partners, provided sell-side advisory services.

Coastal NurseCare, a nice Georgia private duty agency, sold to a regional home care company.  Kevin Taggart, one of our partners, provided sell-side advisory services.

Other than those we have not seen any other acquisitions announced.  We continued to expect M&A to return as a driver of growth as reimbursement visibility improves.

If you hear of any sales please let us know.  At the end of this column we have a form you can send to us that can be sent anonymously.

MULTIPLES OF EBITDA based on Enterprise Value (EV) from earning results through the 4th quarter 2012 with stock prices as of April 30, 2013.

Company Multiple of EV/EBITDA
Almost Family 5.13
Amedisys 4.75
Gentiva 5.73
LHC Group 6.28

Do you know of any acquisitions that have taken place?  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.

Cartoon of the Month, from The New Yorker

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MORE:  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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