December 1st Update

[pl_alertbox type=”info”] 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. [/pl_alertbox]

Quote of the Month:

“CMS has published the final rule…..  It will impact home health payments for the next four years.  The current year impact will reduce home health payments by 1.5 percent or $200 million, but the future impact will be much worse”  Dixon Healthcare Solutions

The Home Health Index soars to a new 2 1/2 year high, up 19% in one month!  Great news for sure, however this large increase was due primarily to only one company…..Almost Family’s stock rose 45% in November.  This increase took place after two recent events.

1.   The announcement of Almost Family’s acquisition of SunCrest HealthCare for a purchase price of $75.5 million, producing revenues of approximately $150 million.  This acquisition has great synergies in both operations and geography.

2.  The CMS final rule, although onerous, was not as bad as the proposal.   After the final rule was issued, analysts looked more favorably on the acquisition.

Our Stoneridge Partners Home Health Index (HH Index) is now up 26.6% year to date and up 33.8% from one year ago.  All stocks in our index are up.

Here are the results:

Company Price 11/30/13 % Change  Month % Change  YTD Price 11/30/12 % Change  One Year
Almost Family 27.9 45.09% 37.71% 19.84 40.63%
Amedisys 16.28 0.00% 43.94% 10.47 55.49%
Gentiva 12.35 8.14% 22.89% 10.30 19.90%
LHC Group 23.75 15.29% 8.99% 19.39 22.49%
Home Health Index 20.07 18.88% 26.60% 15.00 33.80%
S&P 500 1805.91 2.81% 26.62% 1416.18 27.52%
Addus 29 12.19% 305.59% 6.78 327.73%

All stocks are now to the upside both YTD and for 12 months.  With the final rule calling for substantial cuts, does this surprise anyone?

For the last few months we have included Addus in our monthly tracking; however, because they have very little Medicare revenue, they are not included in our index.  Addus however is a home care company to watch closely, and, for the past year, they have had outstanding stock market performance.   One year ago their stock sold for $5.35, today it sits at 29.

The high for our HH Index was set in September, 2008 at 41.75.  It now sits at 20 for the first time since July, 2011.

 GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through November, 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) [iframe_loader src=”http://stoneridgepartners.com/hhi/hhi.html” width=”604″ height=”450″ scrolling=”no”]

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. [iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-vs-sp.html” height=”450″ scrolling=”no”]

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 November, 2013. [iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-12.html” height=”450″ scrolling=”no”]

[iframe_loader src=”http://stoneridgepartners.com/hhi/hhi-addus.html” width=”604″ height=”450″ scrolling=”no”]

BY THE NUMBERS:

Now that all of the earnings reports have been released for the third quarter, we thought it might be interesting to look at some totals. Below is a summary for all of the four companies that are included in our home health index: Almost Family, Amedisys, Gentiva and LHC Group.  We have totaled those, and then added Addus….some interesting reading.

THIRD QUARTER SUMMARY (000)

ALMOST FAMILY 2013 2012 + or – %
Revenue 88,818 83,880 +4,938 +5.9%
Gross Profit 41,267 40,077 +1,190 +3.0%
Gross Profit % 46.46% 47.78% -1.32 -2.8%
G&A Expenses 37,553 33,205 +4,348 +13.1%
Operating Income 3,714 6,872 -3,158 -46.0%
Stock Price Sept 30 19.43 21.28 -1.66 -9.5%
AMEDISYS 2013 2012 + or – %
Revenue:
   Home Health 237,100 290,200 -53,100 -18.3%
   Hospice 64,500 74,100 -9,600 -13.0%
      Total Revenue 301,600 364,300 -62,700 -17.2%
Gross Profit
  Home Health $ 96,200 121,300 -25,100 -20.7%
  Home Health % 40.47% 41.8% -1.23 -2.9%
  Hospice $ 30,000 36,000 -6,000 -16.7%
  Hospice % 46.51% 48.58% -2.07 -4.3%
   Total Gross Profit $ 126,200 157,300 -31,100 -19.8%
   Total Gross Profit % 41.84% 43.18% -1.34 -3.1%
G&A Expenses 130,488 142,013 -11,525 -8.1%
Operating Income -4,332 15,287 -19,619 -128.3%
Stock price Sept 30 17.21 13.82 +3.39 +24.5%

Note that in addition to the $130,388 in G&A expense in 2013, Amedisys recorded an additional $150 million accrued charge toward a settlement with the U.S. Department of Justice.  This settlement is not final, and “the outcome remains uncertain”.  For purposes of comparison we have not included this one time charge.

We think it interesting that revenue was off 17%, and operating income was down over 100%, yet the stock price is up 24.5%.

GENTIVA 2013 2012 + or – %
Revenue:
  Home Health 234,900 234,700 +200 +.8.5%
  Hospice 175,600 189,700 -14,100 -7.4%
    Total Revenue 410,500 424,400 -13,900 -3.3%
Gross Profit
  Home Health $ 115,100 114,500 +600 +0.52%
  Home Health % 49.00 48.79 +0.21 +0.43%
  Hospice $ 74,900 86,100 -11,200 -13.01%
  Hospice % 42.65 45.39 -2.74 -6.04%
    Total Gross Profit $ 190,000 200,600 -10,600 -5.28%
    Total Gross Profit % 46.29% 47.27% -0.98 -2.07%
G&A Expenses 160,800 161,200 -400 -0.25%
Operating Income 29,200 39,400 -10,200 -25.89%
Stock price Sept 30 12.04 11.32 +0.72 +6.36%
LHC GROUP 2013 2012 + or – %
Revenue 164,748 158,926 +5,822 +3.66%
Gross Profit 66,782 67,692 -910 -1.34%
Gross Profit % 40.54% 42.59% -12.05 -28.3%
Operating Income 11,027 11,591 -564 -4.87%
Stock Price Sept 30 23.46 18.47 +4.99 +27.02%

What follows is the total for all four companies in our Home Health Index, Almost Family, Amedisys, Gentiva, and LHC Group

TOTALS 2013 2012 + or – %
Revenue 965,666 1,031,506 -65,840 -6.38%
Gross Profit 424,249 465,669 -41,420 -8.89%
Gross Profit % 43.93% 45.14% -1.21% -2.68%
Operating Income 39,253 73,800 -34,547 -46.81%
Home Health Index Sept 30 18.04 16.22 +1.82 11.22%

These totals show revenue, gross profit, gross profit percent and operating income all down quarter to quarter yet the stock prices as reflected in the home health index are up as of Sept 30  11.22%.

ADDUS 2013 2012 + or – %
Revenue 67,306 61,211 +6,095  +9.96%
Gross Profit 17,226 15,683 +1,543 +9.84%
Gross Profit % 25.59 25.62 -0.03 -0.12%
Operating Income 4,263 3,867  +396 +10.24%
Stock Price Sept 30 28.97 5.35  +23.62 +441.50

Addus is an interesting company with nice positive results.  Revenue up close to 10% and operating income up about the same, yet the stock price has gone from $5.35 to 28.97, up over 400%.  Interesting indeed.

MERGER & ACQUISITION ACTIVITY –

Over the last few months we have seen three significant transactions.

  •  Gentiva purchased the home health and hospice segment of Harden Healthcare,  $476 million in revenue, purchased for $408.8 million, about 86% of revenue.
  • Kindred Healthcare’s acquisition of Senior Home Care, with $143 million in revenue for $95 million, about 66% of revenue.
  • Almost Family’s acquisition of SunCrest HealthCare, with $120 million in revenue for $75.5 million, about 50% of revenue.

All three transactions involved strategic buyers purchasing the platform companies of private equity groups.  Is this a trend?

Stoneridge Partners Recent Transactions:

  • Willow Tree Hospice, located in Pennsylvania sold to a regional healthcare company.  Cory Mertz, one of our partners, provided sell side advisory services.
  • Doctors Home Health Services, a Houston Medicare agency, sold to a national senior living company.  Rhonda Gronberg, our Director of Development, provided advisory services.
  • A Moments Notice, a Florida non-Medicare home care agency, sold to a regional home care company.  Stoneridge Partners provided sell-side advisory services.

We have completed thirteen transactions in the last thirteen weeks!  To see the complete list go to our blog at the following location:  http://stoneridgepartners.com/blog.

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 (with the exception of Addus) are now selling for considerably less.

Company EV as % of Revenue
Almost Family 59%
Amedisys 40%
Gentiva 71%
LHC Group 64%
Addus 99%

Multiples of EBITDA which are based on Enterprise Value (EV).

Company Multiple of EV/EBITDA
Almost Family 9.15
Amedisys 10.08
Gentiva 7.44
LHC Group 6.82
Addus 13.19

The above percentages are based on Enterprise Value (EV), with data provided by Capital IQ.  EV has been calculated based on stock prices December 2.  EBITDA is calculated using methodology that may differ from that used by a company it is reporting.

Do you know of any acquisitions that have taken place?  We would be interested in your comments.  At the top of this column is a “Contact Tab” with 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.

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 

From Don Cummins, Publisher of “The Home Health Index”  don@stoneridgepartners.com

Previous editions of this monthly newsletter can be searched for at the bottom of this page.

Cartoon of the Month, from The New YorkerVeg   Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group