June 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:

“The landscape is shifting.  States are shifting responsibility for care to health plans and managed care.  Focus on managing and coordinating care for the costly dual eligible population”.  Addus HealthCare, whose stock is up 350% from a year ago.

UPDATE:  The Stoneridge Partners Home Health Shows an Uptick!

For the month of May our Stoneridge Partners Home Health Index showed an increase of 4.4%, and the S&P 500 continued its increase….up 2.1%.

All of our stocks were up, however the increase was primarily on the back of Amedisys.  After hitting a low that goes back to 2003 of $10.04, the stock jumped 22.7% to 12.32.  If you will remember in last month’s column we ruminated as to whether or not it was, at that low point, a buy.

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 $16.19, down 61%.  As a comparison, during this same time period the S&P 500 is up about 75%.

Out HH Index is now up 2.1% year-to-date (YTD) while the S&P 500 is up 14.3%.  Almost Family is the only stock that is down, both YTD and from one year ago, and Gentiva leads the parade, up 90% from one year ago.

Here are the results for our HH  Index….take a look at the remarkable results from Addus…more on this later.

Company Price 5/31/13 Change in %,  Month Change in %,  YTD Price 5/31/12 Change in %, year
Almost Family 19.77 +0.15% -2.42% 22.23 -11.07%
Amedisys 12.32 +22.71% +8.93% 10.97 +12.31%
Gentiva 10.66 +1.62% +6.07% 5.61 +90.02%
LHC Group 21.99 +1.24% +0.92% 16.75 +31.28%
Home Health Index 16.19% +4.44% +2.10% 13.89 +16.52%
S&P 500 1630.74 +2.08% +14.34% 1310.33 +24.45%
Addus 17.99 +51.94% +151.61% 3.99 +350.88%

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

(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 May, 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 May, 2013.

Notice the nice upward trend of LHC Group and Gentiva.

 

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 Addus:

Regarding stock market performance, clearly the big news is Addus HealthCare.  Because they have very little Medicare revenue, they are not included in our HH Index  (NASDAQ:ADUS), but talk about a stock on a tear….they are up over 50% last month, up 151% year-to-date and over 350% from one year ago.

Under their trademarked program called Addus Dual Advantage, they are focusing on the  dual eligible population, which they state is the top 5% in terms of resource and expenditures.

A few numbers from their latest Form 8-K:

  • Dual represents 36% of total Medicare spending and 39% of total Medicaid spending.
  • Twenty six States have indicated they will participate over the next three years.
  • $300 billion in annual spending for dual elibible in 2007.
  • Funding is administered by the State.
  • Approximately nine million are “Duals”

Clearly the stock market likes their game plan.  To see the complete report go to the following link:      Addus Form 8-K

Addus Stock Price for the Past Two Years

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What follows are the results for the HH Index companies for the first quarter

(in thousands) 2013 2012 Change % Change
Almost Family
Revenue 86,858 89,950 -3,092 -3.4%
Gross Profit 40,538 44,191 -3,653 -8.3%
Gross Profit % 46.7% 49.1% -2.4 -4.9%
Operating Income 5,164 7,998 -2,834 –35.4%
EBITDA 6,086 8,891 -2,805 -31.5%
Amedisys
Revenue
Homecare 272,300 301,400 -29,100 -9.7%
Hospice 66,900 69,400 -2,500 -3.6%
Revenue-Total 339,175 370,833 -31,658 -8.5%
Gross Profit 146,671 162,327 -15,656 -9.6%
Gross Profit % 43.2% 43.8% -0.6 -1.4%
Income-Operating 4,169 12,457 -8,288 -66.5%
Gentiva
Revenue
Homecare 236,100 240,000 -3,900 -1.6%
Hospice 179,500 195.700 -16,200 -8.3%
Revenue-Total 415,591 435,652 -20,061 -4.6%
Gross Profit 194,018 202,791 -8,773 -4.3%
Gross Profit % 46.7% 46.5% +0.2 +0.4%
Income-Operating 34,141 29,084 5,057 +17.4%
LHC Group
Revenue 161,953 158,761 +3,192 +2.0%
Gross Profit 68,705 68,902 -197 -0.3%
Gross Profit % 42.4% 43.4% -1.0 -2.3%
Income-Operating 13,165 15,259 -2,094 -13.7%
TOTALS
Revenue 1,003,577 1,055,196 -51,619 -4.9%
Gross Profit 449,932 478,211 -28,279 -5.9%
Gross Profit % 44.8% 45.3% -0.5 -1.1%
Income-Operating 56,639 64,798 -8,159 -12.5%

Gentiva was the only company that ended up with an increase in their operating income, due to their reduction in G&A expenses of close to $14 million for the quarter.

But the total of the four companies tells the story:  revenue, gross profit dollars & percentage, and operating income….all down.  With the 2% sequestration cut sticking around like Velcro, can we really expect much improvement in these numbers in the second quarter?

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.

(As a bit of a sequestration side note, I don’t believe that the  salaries or benefits of our congresspeople have been affected on iota.)

MERGER & ACQUISITION ACTIVITY

Again, not much in announced acquisitions from these public companies.

LHC Group announced that they have entered into an agreement to acquire the assets of AseraCare Home Health, which includes four locations and about $5 million in annual revenue.  The transaction is expected to close on or around June 28.  This leaves AseraCare with a substantial presence in hospice.

Kindred’s subsidiary has signed a definitive agreement to acquire QStaff Home Healthcare and Advanced Care Hospice (“QStaff”). Terms of the transaction were not disclosed. QStaff is a high-quality provider of home health and hospice services that operates one location in the Houston, Texas market and provides services in five counties.  They generate annualized revenues of approximately $2 million. The transaction is expected to close in the second quarter of 2013.

Kindred’s subsidiary also signed a definitive agreement to acquire Caring Hearts Home Health, with locations in Big Springs and Odessa, Texas.  They generate about $1.6 million in revenue.  This transaction is also expected to close in the second quarter of 2013.

Aurora Hospice, located in Houston, recently sold to a national homecare and hospice provider.   We provided sell-side advisory services.

Other than that 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 1st quarter 2013 with stock prices as of May 31, 2013.

Company Multiple of EV/EBITDA
Almost Family 5.2
Amedisys 5.6
Gentiva 5.9
LHC Group 6.8
Addus 8.5

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

http://www.technologyinvestor.com/wp-content/uploads/2013/06/skindisese.jpg

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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