August 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:

“We are pleased to see the overall positive tone of the proposed Medicare regulations recently published by CMS, in particular the recision of the physician face-to-face narrative requirement that has proven so troublesome…..these are some of the most positively written proposed regulations we have seen since the implementation of the home health prospective payment system in 2000.”     Steve Guenthner, President, Almost Family

The Stoneridge Partners Home Health Index (HH Index) hits a three year high, up another 13%.

While the S&P 500 suffered its first loss in four months, our Stoneridge Partners Home Health Index gained another 13% and is now up 34% since May 1.  Not since August, 2011 has our index been at this level.

Again the prices of the four public companies that make up our index present a very mixed picture.  This past month’s increase was powered primarily by Amedsys and Genitva, both up over 20%.  Gentiva is now up 140% since May 1, following Kindred’s offer.  More on this later.

The high for our HH Index was set in September, 2008 at 41.75.  We now sit at 21.30, but we’re crawling back.

Here are this month’s results:

Company 7/31/14 6/30/14 Mos % Change YTD % Change Year Ago % Change
Almost Family 23.44 22.08 +6.16% -27.50% +22.53%
Amedisys 20.19 16.74 +20.61% +38.00% +61.39%
Gentiva 18.10 15.06 +20.19% +45.85% +68.53%
LHC Group 23.48 21.37 +9.87% -2.33% +2.35%
HH Index 21.30 18.81 +13.24% +2.16% +30.45%
S&P 500 1930.67 19.60.41 -1.52%  +4.45% +14.53%
Addus 22.25 22.48 -1.02% -0.89% +13.29%

On a very positive note all stocks in our index are up over one year ago with our HH Index up over 30%.

IN THE NEWS:

Gentiva-Kindred: News regarding the potential Kindred – Gentiva transaction continues to provide interesting reading.  In May Kindred offered to buy Gentiva shares for $14.  The stock at that time was trading for around $8, so this was huge news and the price of the stock skyrocketed.  Gentiva however rejected the offer, and it was rumored that Gentiva was considering an acquisition of Amedisys.

Kindred raised their offer to $14.50 which was immediately rejected, and Gentiva then put in place a poison pill that made an acquisition much more difficult.

This past month Gentiva disclosed that they had received another offer from an undisclosed party for $17.25 a share.  Kindred then matched the offer.

From what we have been able to read in the various press releases, it now appears that both the undisclosed suitor and Kindred are in due diligence. Interesting!

Rumored names of the undisclosed suitor include:

  • Formation Capital, a private equity firm with over $4 billion invested in senior living and an  investor in Millennium Home Health Care.  They are also an investor in hospice.
  • Cressey & Co, a private equity firm that with investments in Encompass Home Health & Hospice, and Hospice Compassus.
  • GTCR, a private equity firm whose $8 billion portfolio includes Curo Health Services, a hospice provider.
  • KKR, owner of 15% of Amedisys.

We continue to believe that Kindred will be the successful bidder, and that a deal will get done.

AMEDISYS released their 2nd quarter earnings, by the numbers, in thousands

2014 2013 Difference % Change
Revenue
   Home Health 243,500 250,500 (7,000) (2.79%)
   Hospice 61,500 65,400 (3,900) (5.96%)
     Total Revenue 305,006 315,960 (10,954) (3.47%)
Cost of Sales 172,520 177,760 (5,240) (2.95%)
Gross Profit
   Home Health 104,200 107,300 (3,100) (2.89%)
    % GP 42.8% 42.8%
   Hospice 28,300 30,900 (2,600) (8.41%
   % GP 46.0% 47.2%
     Total GP 132,486 138,200 (5,714) (2.95%
G&A Expenses 119,925 133,950 (14,025) (10.5%)
Operating Income 12,561 4,250 8,311 +195.5%

Revenue, and gross profit down in both home health and hospice, but expenses slashed and profit tripled.

This earnings release took place on July 30, and the stock price immediately spiked from $16 to $19.70.   Clearly the market liked these numbers.

To read the entire “Earnings Call Transcript” go to the following link:

Amedisys Earnings Call

GRAPHS: 

This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through July, 2014.

(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 for over 13 years,  going back to November, 2002.  It has been quite a ride. [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 June, 2014. [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”]

PERCENT OF REVENUE & MULTIPLE OF EBITDA: 

Enterprise Value = EV
Company EV as % of Revenue
Almost Family 67%
Amedisys 67%
Gentiva 98%
LHC Group 75%
Addus 81%

Note that, perhaps as a result of Kindred’s offer, the price of Gentiva’s stock is now at 98% of revenue, which begs the question:  Are the other companies under valued?

MULTIPLES OF EBITDA 

Company Multiple of EV/EBITDA
Almost Family 17.65
Amedisys 32.50*
Gentiva 13.76
LHC Group 9.36
Addus 12.69

* This spike in multiple of EBITDA for Amedisys may be a result of the increased earnings recently announced for the 2nd quarter.   It seems that  the stock trades on current earnings but the multiple of EBITDA is calculated on a trailing twelve months.

The above calculations are based on Enterprise Value (EV), with data provided by Capital IQ.  EV has been calculated based on stock prices July 31.

Enterprise value is defined as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents.  EBITDA is calculated using methodology that may differ from that used by a company it is reporting.

MERGER & ACQUISITION ACTIVITY:

Geisinger Community Health Services and SUN Home Health & Hospice announced today that they have received regulatory approval of the comprehensive integration agreement by which SUN Home Health & Hospice is now part of Geisinger Health System.

The agreement allows the organizations to work more closely together to benefit patients in need of home healthcare, hospice and other supportive medical services, administrators said.

“We are pleased to welcome SUN Home Health & Hospice to the Geisinger family,” said Geisinger Health System Vice President for Population Health Denise B. Prince.

The Ensign Group, Inc., the parent company of the Ensign™ Group of skilled nursing, rehabilitative care services, home health and hospice care, assisted living, and urgent care companies, announced today that it has acquired Namaste Hospice located in Denver, Colorado.    Link to the entire article:  Ensign Group Acquisition

Greystone Health Management Group acquired Amity Hospice, a Columbus, Ohio based provider.  This acquisition complements and expands their existing healthcare services in Ohio, which includes the Rehabilitation and Health Center of Gahanna and their existing home health services.

COMPANIES EXCLUSIVELY LISTED FOR SALE BY STONERIDGE:

  • Arizona – $2 million hospice located in large Metropolitan area.  Clean surveys and no CAP issues.  Stoneridge file S-6210.
  • Ohio- $2.2 million revenue run rate diversified agency in central Ohio.  Private pay and both Medicare & Medicaid certified to serve both dual eligible and managed care populations.  Excellent outcomes.  Stoneridge file S-5276.
  • West Texas – $3.5 million Medicare agency established in 1995.  Stoneridge file S-5279.
  • Ohio – $2.5 million Medicare agency in Columbus area, 75% traditional Medicare, long history of quality care.  Stoneridge file S-5232.
  • Illinois – Profitable $5.5 million revenue Medicare home care and hospice serving the northern Chicago MSA.  Mature management team in place, a diverse referral base and strong outcomes — exceeding state and national averages on 15 of 22 quality measures as measured by Medicare’s “home health compare”.  Stoneridge file S-5288.
  • Florida – Orlando area Medicare agency with about $900,000 revenue.  Stoneridge file S-2540.
  • Ohio – $11 million Ohio Medicaid Provider.  Experienced management team will stay with new owner.  Stoneridge file S-5283
  • Georgia – Medicaid provider with over $6 million in revenue, 40% gross margin, and approx. $800K in EBITDA.  Stoneridge file S-5263.
  • Texas – Multi-location private duty home care agency, $3.4 million revenue with a consistent 40% gross profit produces 15% EBITDA.   A quality agency evidenced by their latest survey with zero deficiencies,  Stoneridge file S-4250.
  • West Virginia – Medicare home care agency in CON state.  $3 million in revenue, growing with new CON territories being developed.  Strong management team.  Stoneridge file S-5261.
  • Texas – $3.5 million Medicare & Medicaid provider.  40% pediatric services, Gross margin of 48% and adjusted EBITDA of $400,000.  Stoneridge file S-5231.
  • Minnesota – Medicaid home care agency.  Large and diversified with $11 million in revenue, with unique license that positions it well for growth.  Stoneridge file S-5268.
  • Florida – Diversified Medicare/Medicaid Home Care Agency with revenue of approx. $4 million.  Professionally operated with excellent financial records.  Stoneridge file S-5280.
  • Dallas-Ft. Worth – $1.7 million of pure high-end private pay.  No Medicare/Medicaid. Professionally run and profitable.  Stoneridge file S-5281.
  • California – $8.3 Million Private Duty and Medicare Provider.  Predominately a private duty provider, this agency also operates a small, but significant, Medicare operation, making it a unique opportunity.  Owner will consider selling the business lines separately.  Stoneridge file S-3098.
  • California – Los Angeles Medicare, Medi-Cal and private pay skilled care provider.  They have a long history in the local community and top-notch management that is willing to stay with a new owner.  Stoneridge file S-3000.
  • Ohio – Small Medicaid waiver business in the Columbus area, Medicare certified.  Stoneridge file S-2545.
  • California – $5 million Hospice agency east of Los Angeles, profitable with clean surveys.  Stoneridge file S-3037
  • New Mexico – Private pay home care and care management agency with annual revenue approaching $1 million.  Stoneridge file S-5450
  • California – $3 million Santa Barbara Medicare agency, very motivated seller invites all offers.  Stoneridge file S-3098M
    To see more home care agencies and hospices exclusively listed for sale by Stoneridge Partners go to the following link:

Agencies for Sale

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.

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 

From Don Cummins, Publisher of “The Home Health Index”  don@stoneridgepartners.com –  800-218-3944

Previous editions of this monthly newsletter can be searched for below.

 

 

 

 

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group