July 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:

“Agencies across the country are faced with looming budget cuts, the possibility of more cost shifting onto beneficiaries(co-pay), diminishing margins, and increasingly stringent – and often confusing new regulations.”  Bill Dombi, Executive Director, NAHC.

The Stoneridge Partners Home Health Index Hits a Seven Month Low!

What a way to end the month.  On June 27 CMS released their proposed Medicare home health payment rates for 2014 which set re-basing at the maximum reduction of 3.5% for each of the next four years.   Although this is just a proposal it sent a shock wave to the stocks in our Stoneridge Partners Home Health Index, causing the index to drop over 10% in just a few hours, something we have not seen in our ten years of tracking.

Until then our HH Index had been up, however we are now down about 7% for the month and 5% YTD.  On the good news front, our index is still up from a year ago.

And look at Addus, which continues its tear, up over 9% last month, and now up over 300% from a year ago. Really remarkable.

Here are the results for our HH  Index:

Company Price 6/30/13 Change in %,  Month Change in %,  YTD Price 6/30/12 Change in %, year
Almost Family 19.09 -3.44% -5.77% 22.34 -14.55%
Amedisys 11.16 -5.84% +2.56% 12.45 -6.83%
Gentiva 9.96 -6.57% -0.90% 6.93 +43.72%
LHC Group 19.58 -10.96% -10.14% 16.96 +15.45%
Home Health Index 15.06 -6.97% -5.01% 14.67 +2.64%
S&P 500 1606.28 -1.50% +12.63% 1362.18 +17.92%
Addus 19.74 +9.73% +176.08% 4.91 +302.04%

All of our stocks were down in June, with LHC Group leading.  However when looking back one year it becomes hard to generalize.  Gentiva is up over 40% from one year ago, while Almost Family and Amedisys are both down.

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 about $15, a seven month low.   As a comparison, since 2008, the S&P 500 is up about 70%.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through June, 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 going back to November, 2002.

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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, 2013.

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Regarding stock market performance, clearly the big news continues to be 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….even with the bad news from CMS they were up 10% last month, and over 300% 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.

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Medicare Rate Cuts:  CMS estimates that the total cut in 2014 will amount to 1.5%….this in addition to the 2% sequestration cut already in place as of April 1st of this year.

As a result of this announcement,  private equity firm RW Baird downgraded the stocks of all of the companies in our HH Index as a group from “neutral to “underperform”,  and our index took a steep nosedive.

Selling Price as a Percent of Revenue:  For many years the selling price of good Medicare agencies was generalized at about 100% of revenue.  Clearly that is no longer the case.  These public companies are now selling for considerably less.  The following percentages are based on Enterprise Value (EV), with stock prices as of June 30, 2013.

Company EV as % of Revenue
Almost Family 42%
Amedisys 30%
Gentiva 63%
LHC Group 58%
Addus 79%

Multiples of EBITDA which are based on Enterprise Value (EV) from their earning results through the 1st quarter 2013 with stock prices as of June 30, 2013.

Company Multiple of EV/EBITDA
Almost Family 5.07
Amedisys 5.35
Gentiva 5.91
LHC Group 5.97
Addus 10.52

MERGER & ACQUISITION ACTIVITY

  • Just announced and effective July 3:  LCS®, a national leader in senior lifestyle services and senior living community development and management, and CareSouth®, a leading regional provider of home health services, announced a joint venture partnership in Health at Home™, an LCS Company.   CareSouth will manage the operations of the existing 17 Health at Home locations in 11 states, currently serving over 1,400 clients.
  • Mercer Street Friends, Trenton, New Jersey, announced that they have signed an agreement to transfer the assets and services of Mercer Street Home Health, a Medicare agency, to Ocean Healthcare, a network of family-owned and operated healthcare centers headquartered in Lakewood, New Jersey.  This transaction is expected to be finalized within 6 to 8 weeks.  Cory Mertz, one of our Stoneridge partners, is providing sell-side advisory services.
  • A subsidiary of Kindred has signed a definitive agreement to acquire the assets of All Heart Home Health Agency and Hospice, Inc. (“All Heart”).  All Heart is a Medicare home health and hospice provider that operates two locations in Norfolk, Virginia. All Heart currently generates annualized revenues of approximately $5.5 million. This transaction is subject to several regulatory approvals and other conditions to closing and is expected to close in the third quarter of 2013.   Rhonda Gronberg with Stoneridge Partners is providing advisory services.
  • A subsidiary of Kindred has signed a definitive agreement to acquire the assets of Arrowhead Home Health, Inc. and Arrowhead Hospice Centers, Inc. (“Arrowhead”). Arrowhead is a home health and hospice provider that operates two locations in the greater Phoenix market. Arrowhead currently generates annualized revenues of approximately $2.2 million. This transaction is subject to several regulatory approvals and other conditions to closing and is expected to close in the third quarter of 2013.
  • LHC Group Inc. (NASDAQ: LHCG) has completed the previously announced acquisition of AseraCare Home Health. The transaction represents LHC Group’s initial home health entry into the states of Minnesota, Wisconsin and Pennsylvania and expands LHC Group’s geographical footprint to 310 locations across 26 states.The acquisition includes four home health agencies located in Atlanta, Ga.; Bloomington, Minn.; Milwaukee, Wis.; and Pittsburgh, Pa.  Annual revenue is approximately $5 million.

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.

Webinar:

On Thursday, June 11 at 2 pm ET, we will be giving an informative and entertaining webinar on “The Process of Selling a Hospice”  To learn more go to the link on our home page.

Cartoon of the Month, from The New Yorker

NewDanBrownNovel

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