Uncertainty Over PDGM, Coronavirus Results in Setback for Home Health Stocks in February
The latest Home Health Index (HHI) from mergers and acquisitions advisory firm Stoneridge Partners shows home health stocks took a hit in February, bringing their recent momentum to an abrupt halt. The continued transition to the Patient-Driven Groupings Model (PDGM) and fear over the spread of coronavirus are the most likely culprits behind the decline, which mirrored an almost identical downturn in the broader market. Both the HHI and the S&P 500 were down just more than 9% for the month.
“After starting 2020 on a high note, home health stocks struggled in the second month of the year,” said Rich Tinsley, President and CEO of Stoneridge Partners. “Some of that we expected as companies are still in the early stages of their adjustment to PDGM. What we couldn’t necessarily have anticipated was the market’s response to the spread of coronavirus. Home health stocks were not spared from the downturn caused by fear over the virus’ arrival in the U.S.”
Last month, rising anxieties over the continued spread of coronavirus contributed to the largest single-week stock market downturn since 2008, with roughly $6 trillion in market value taken off the table.
Released monthly, the HHI follows the stock values of Baton Rouge, Louisiana-based Amedisys, Inc. (Nasdaq: AMED) and Lafayette, Louisiana-based LHC Group, Inc. (Nasdaq: LHCG). LHC Group bore the brunt of the HHI’s decline last month, losing 20% of its stock value compared to January. Alternatively, the stock value of Baton Rouge, Louisiana-based Amedisys was down just 1.43%.
Even considering February’s losses, LHC is still outperforming its market values from last fall. Over the trailing 12 months, LHC Group’s stock was up more than 14% as of February. Amedisys’ 12-month performance was even more impressive, up nearly 42%.
“Financially, both companies had a strong year in 2019,” Tinsley said. “And even though February was a tough month for the market in general, there are plenty of reasons for them to remain optimistic about the rest of 2020.”
Post-Acute Market Performance
The Stoneridge Partners Post-Acute Index (PAI) is now in its second month, tracking stock values for Encompass Health Corp. (NYSE: EHC), Brookdale Senior Living, Inc. (NYSE: BKD) and The Pennant Group, Inc. (Nasdaq: PNTG). Additionally, Stoneridge has moved its monitoring of stock values for Addus HomeCare Corporation (Nasdaq: ADUS) from the monthly HHI to the Post-Acute index.
Companies in the PAI also suffered setbacks in February. Addus stock values were down almost 24% in February compared to January. Similarly, stock values for Encompass Health and Brookdale were down nearly 3% and 0.30% compared to January, respectively.
Meanwhile, The Pennant Group — the publicly traded home health and hospice provider that spun off from The Ensign Group last year — saw its stock values buck the trend and climb by almost 3% in February compared to the previous month.
Quote of the Month
“Despite the grim statistics, the number one thing providers need to remember is that panic is counterproductive.” – Linda Murphy, COO of Concierge Home Care.
Read the full article here: Avoiding Panic, Educating Staff Keys to Surviving Coronavirus Scare
Stoneridge Partners in the News
Recent Transactions Closed by Stoneridge
- Danville Services, a multi-state provider of services to people with disabilities in Utah, Arizona, Oregon and Nevada was sold recently in a transaction with senior management.
Stoneridge Partners Home Health Index and Post-Acute Index
The Stoneridge Partners Home Health Index (HHI) is updated monthly and measures the performance of these two publicly traded home health companies, both listed on the NASDAQ:
- LHC Group (LHCG)
- Amedisys (AMED)
This graph compares the percentage change of the Home Health Index to the percentage change of the S&P 500 Index going back to 2002.
This chart shows 12 month trailing results for the HHI compared to results during the same time period for Amedisys and LHC Group.
This graph displays HHI performance since 2002.
This graph compares the HHI to the price of Addus stock (non-Medicare).
(Home Health Index March 2020 | Stoneridge Partners)
Stone price results for 2018, 2019 and 2020:
|Company||2/28/20||1 mos change||YTD change||2/28/19||2/28/18|
Although we track the performance of Addus, they are not included in our HH Index because very little of their revenue comes from Medicare.
Enterprise Value (EV)
|EV (in M)||2/28/20||2/28/19||2/28/18|
Enterprise Value (EV), aka Selling Price, as Percent of Revenue
Multiples of EV/EBITDA
Think of this as selling price as a multiple of EBITDA.
The Stoneridge Partners Post-Acute Index is updated monthly and measures the performance of these publicly traded home health companies, all listed on the NASDAQ:
- LHC Group (LHCG)
- Amedisys (AMED)
- Addus (ADUS)
- The Pennant Group, Inc. (PNTG)
- Encompass Health (EHC)
- Brookdale Senior Living Inc. (BKD)
This graph displays Post-Acute Index performance since Fall 2019.
The above calculations are based on selling price defined as Enterprise Value (EV), with data provided by Capital IQ. 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 which may differ from that used by a company for its reporting. (Home Health Index March 2020 | Stoneridge Partners)
Recent Transactions from Around the Country
- BrightSpring Health Services, a leading provider of complementary pharmacy and home and community-based services, has announced the acquisition of Advanced Home Care’s home health and specialty infusion businesses.
- Discovery Behavioral Health acquired New Hope Ranch, an addiction and mental health services provider in the greater Austin, Texas area
- Minnesota-based St. Croix Hospice has purchased Serenity Care Hospice in Harrison, Missouri. St. Croix is a portfolio company of the Chicago-based private equity firm Vistria Group.
- The Pennant Group, Inc., the parent company of the Pennant group of affiliated home health, hospice and senior living companies, today announced that a subsidiary of Cornerstone Healthcare, Inc., Pennant’s home health and hospice portfolio company, acquired Hospice of Missoula, an agency providing hospice services and palliative care in western Montana. The acquisition was effective March 1, 2020.
- Tarrytown, N.Y-based employment services firm The IMA Group (IMA) has acquired PsyBar, a specialty provider of behavioral health, independent medical exams and other employment-related services nationally.
Exclusively Listed for Sale by Stoneridge Partners
|State||Agency Profile||Status||Reference Number
|Arizona||Opportunity to establish hospice in Phoenix area. ACHC-accredited.||Available|
|California||$11 million multi-location addiction treatment center. Located in Southern California. 21% bottom line. Strong growth trends. JCAHO-accredited.||Available|
|California||Medicare-certified home health agency established in 2003. $2 million annual revenue in 2018. PDGM revenue-neutral. Located in Southern California. Clean business with no ADRs.||Available|
|Colorado||Opportunity to establish Medicare home health agency. Denver market. ACHC accreditation until 2022.||Available|
|Florida||Medicare-certified home health agency. Approximately $3.8 million in revenue with 17% bottom line. Located in Districts 9 and 10. Revenues split evenly between districts. Accredited. 4.5-star quality of patient care rating.||Available|
|Georgia||ID/DD service provider with $1 million in revenue. Residential and day services offered, located in Atlanta suburb.||Available|
|Illinois||$5.5 million accredited Medicare agency located in northeastern Illinois. Strong bottom line. 4.5-star rating by CMS.||Available|
|Louisiana||Boutique full-service clinical laboratory specializing in preventative diagnostic testing. Medicare- and Medicaid- certified, with insurance contracts in more than 20 southeastern states.||Available|
|Massachusetts||Medicare- and Medicaid-certified home health agency. |
$13+ million in annual revenue with continued growth. Diverse payor mix. Strong management in place. Accredited.
|Massachusetts||Medicare- and Medicaid-certified home health agency. Motivated seller in western Massachusetts. $7.5 million annual revenue. Great add-on for existing provider.||Available|
|Michigan||Medicare home health and hospice agency. $10 million in annual revenue with numerous referral relationships.||Available|
|Michigan||$2 million ID/DD agency in the Detroit area. Profitable service provider with existing management team in place.||Available|
|Michigan||$1.5 million private duty home health agency in eastern Michigan. Profitable and well-positioned for additional growth. Self-sufficient staff in place. 82 long-term clients.||Available|
|Mid-Atlantic||$10+ million non-skilled home care agency. Primarily Medicaid reimbursed with 20% EBITDA margins. Strong management team in place.||Available|
|Multi-State||Well-established pediatric provider. Revenue more than $40 million. Medicaid and insurance accepted.||Available|
|Nevada||Medicare-certified home health agency in Las Vegas area. Approximately $1 million in annual revenue. Accredited.||Available|
|New Mexico||Home health and hospice with $15 million in annual revenue. Revenue split is 2/3 home health and 1/3 hospice. Medicare- and Medicaid-certified. Accredited.||Available|
|New York||Licensed home care services agency with services in five boroughs. Approximately $20 million in revenue and a long-standing history in the community.||Available|
|New York||Licensed home care services agency with $13 million in revenue. 30-year history. Licensed in all five boroughs.||Available|
|New Mexico||$2.5 million New Mexico home health agency. 87% Medicare. Long history in the community and existing staff in place.||Available|
|North Carolina||$1 million ID/DD agency with real estate. Long-term client base, additional growth potential and strong margins.||Available|
|Oklahoma||Medicare-certified home health agency with $9.6 million in annual revenue. 98% traditional Medicare and other PPS payors. Medicare- and Medicaid-certified with multiple locations.||Available|
|South||Treatment center with 28 beds, intensive outpatient program capacity of 40, full continuum of substance use disorder services and dual diagnosis treatment capability. JCAHO accreditation pending. $4+ million in revenue, highly competitive in-network contracts. Average census of 30. Existing relationships with county, parole, local hospitals, churches and universities. Solid business in desirable location with little area competition.||Available|
|South||Full continuum, JCAHO-accredited substance use disorder treatment center on 100+ acre horse ranch. Dual diagnosis treatment capability with 16 beds and 22 staff. $1.5 million EBITDA on $3.5 million in revenue. In-network with great contracts/rates and strong census.||Available|
|South||Partial hospitalization treatment program/intensive outpatient program seeking strategic partner. Strong census and revenue growth. No direct competition for niche market.||Available|
|Southwest||$5+ million 37-bed outpatient treatment center. Fully accredited and recently revamped to increase growth and margin. Great census, UR, acquisition and solid numbers. Out of network but transitioning to some in-network.||Available|
|Southwest||64 bed full continuum 64-bed full continuum treatment center in two southwestern US metropolitan cities. JCAHO-accredited and in-network. $4 million pro forma EBITDA run rate based on 30% occupancy with significant growth expected. Strong infrastructure to support growth trajectory.||Available|
|South-Atlantic||Home health agency and adult day care center with $12+ million in annual revenue. Home health represents 85% of revenue while adult day represents 15% of revenue. Home health is primarily a Medicaid business but is Medicare-certified. Accredited.||Available|
|South Texas||Hospice with $3.5 million in annual revenue. Accredited. No cap or regulatory issues.||Available|
|Tennessee||Very rare opportunity in a Certificate of Need state, located in Nashville, TN (Davidson County). Projected 2019 revenue in excess of $800,000.||Available|
|Texas||$5.3 million Medicaid agency in San Antonio, TX. 16.5% EBITDA. CHAP-accredited. Staff can remain in place for a smooth transition.||Available|
|Texas||$5.3 million all-Medicaid home care company located in Houston, TX. 20%+ year-over-year revenue growth since 2016.||Available|
|Texas||$3.5 million Medicare certified $3.5 million Medicare certified home health agency located in San Antonio, TX. Fully staffed and CHAP-accredited. Branch office is included in sale.||Available|
|Texas||$1.7 million Medicare home health agency located in Southwest Houston. Well-established with predictable referral sources and revenues.||Available|
|Texas||$1 million Medicare-certified agency licensed in seven counties in the Houston area. 80% traditional Medicare.||Available|
|USA||New software application helping build social connections among patients in recovery and giving them increased access to therapists. Potential investment opportunity. Facilitates total successful recovery and gathers important helpful data.||Available|
|Virginia||$6 million Medicare-certified agency in Northern Virginia.||Available|
|Virginia||Physical therapy and wellness operation with $2.3 million in revenue. 95% cash payors. Potential to franchise nationwide. 2018 EBITDA was $257,000.||Available|
|West||Premier provider of primary mental health services for adolescents aged 13-18 with two locations. Currently growing in-network contracts.||Available|
|East||Healthcare testing laboratory with $7 million in revenue and $4 million EBITDA. 16 employees, multiple state licenses.||Under Contract||
|Florida||$9.5 million home health agency with strong management, clinical and financial operations. 99% of revenue comes from traditional Medicare.||Under Contract||
|Florida||Medicare/Medicaid certified home health agency. $2.5 million annual revenue. 5-star. Accredited. District 10.||Under Contract||
|Kentucky||Medication-assisted clinic. Intensive outpatient program counseling for substance abuse and co-occurring disorders. Profitable with strong team in place. 150 clients. 95% Medicaid.||Under Contract||
|Kentucky||Medication-assisted treatment center. Suboxone only. Strategic location between Louisville and Lexington, Kentucky. Great reputation with strong clinical team in place. 110 clients with room to grow. In-network contracts. Clients pay $150 per visit for counseling twice per month. Owners are near retirement and will help with the transition.||Under Contract||
|North Carolina||$5 million Medicaid agency. $5 million Medicaid agency. CAP/PCS services. Long history of providing quality services.||Under Contract||
|Pacific Northwest||Full continuum substance use disorder, mental health and gambling addiction treatment center in Washington state with $3,625,000 in revenue and $1,100,000 EBITDA. 40 bed facility with 40 employees. Strong census, full outpatient program and Medicaid payors.||Under Contract||
|Southwest||Provider of waiver and intermediate care facility ID/DD services with $25 million in annual revenue. Statewide platform with a strong management team and excellent reputation for quality services.||Under Contract||
|Texas||Three Hospice companies with Three hospice companies with affiliated home health and $6 million in total revenue. Locations in south, southcentral, and southeast Texas.||Under Contract||
|Texas||Home health and hospice covering 10 counties in west Texas/eastern New Mexico with $5 million in revenue. No clinical issues, under CAP. Very profitable. Easily separated.||Under Contract||
|Texas||$4 million home health agency based in Dallas/Ft. Worth. Full staff in place. Medicare and managed care with great contacts.||Under Contract||
|Texas||$3+ million hospice agency based in Dallas/Ft. Worth. Well established with full staff in place. Clinically clean and growing.||Under Contract||
|Texas||$1.4 million revenue pediatric Pediatric therapy business with $1.4 million in revenue. Provides physical therapy (PT), occupational therapy (OT) and speech therapy (ST) to disadvantaged and disabled children in a major Texas city and surrounding counties. Positive reputation for providing quality care in a child-friendly environment. Average census is 190 patients with a goal of 225 for calendar year 2019.||Under Contract||
Do you know of any acquisitions that have taken place? We are interested in your comments. Contact us at Stoneridge Partners.
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Home Health Index March 2020 | Stoneridge Partners
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