6 Home Health Care Stocks to Watch

NEW YORK (TheStreet) -- Based on the strong industry outlook, latest quarterly results and analysts' hold recommendations, these six home health care stocks have potential upsides ranging from 13% to 60%. On average, these stocks have buy recommendation of 28% and hold rating of 67%, based on a Bloomberg consensus.

These stocks are listed in ascending order of upside potential. Upside is implied by average analysts' price targets.

6. Chemed ( CHE) operates through two segments: VITAS Group and the Roto-Rooter Group. VITAS focuses on hospice care for terminally ill patients, while Roto-Rooter provides plumbing and drain-cleaning services to both residential and commercial customers.

For the second quarter of 2011, the company reported a 5.8% increase in revenue to $333 million, with the VITAS segment generating a revenue increase of 7.3%. The GAAP diluted earnings per share soared 14.6%, to 94 cents, during the quarter. Net income expanded to $20.3 million from $18.9 million in the second quarter of 2010. Net cash from operating activities doubled to $51.1 million from $20.3 million in the year-ago quarter.

The company recently raised its quarterly dividend to 16 cents per share, up 14.3% from 14 cents paid in the second quarter of 2011. For full year, the company expects revenue growth of 7.5% to 8.5% in VITAS and 6.5% to 8.5% in Roto-Rooter.

EPS, excluding non-cash expense for stock options, non-cash interest expense related to accounting for convertible debt and other items not indicative of ongoing operations, is estimated at $4.7 to $4.8, compared to adjusted earnings per diluted share of $4.17 in 2010.

Of the seven analysts covering the stock, two recommend a buy and three suggest a hold. Data from Bloomberg has analysts forecasting the stock gaining 13.2%, to $65.33, in the upcoming 12 months.

Note: Upside is implied by average analysts price target.

Note: Upside is implied by average analysts price target.

5. Almost Family ( AFAM) is a provider of home health services with operations in two segments: Visiting Nurse Services and Personal Care Services. It has service locations in Florida, Kentucky, New Jersey, Connecticut, Ohio, Massachusetts, Missouri, Alabama, Illinois, Pennsylvania and Indiana.

For the second quarter of 2011, the company recorded revenues of $82 million. Net income stood at $5 million, or 53 cents per share. Net service revenue in the PC segment increased 3.3% to $10.5 million from the second quarter of 2010. For the quarter, cash and cash equivalents stood at $56.2 million compared to $31.3 million in the same quarter the prior year.

Meanwhile, Medicare and completed episodes in the VN segment during the quarter expanded 7.1% and 3.8%, respectively. The average number of locations increased to 93 from 87 in the previous quarter. For the PC segment, revenue per billable hour increased to $18.36 from $17.88 in the year-ago quarter.

In the first week of August, the company entered into a stock purchase agreement with the shareholders of Cambridge Home Health Care Holdings to acquire 100% of the outstanding interests for $32.5 million. Cambridge operates 35 home health branches in Ohio and 3 in western Pennsylvania with more than 3,000 patients annually. It has annual revenue of $38 million.

Of the eight analysts covering the stock, one recommends a buy and seven rate it a hold. The stock has no sell ratings. Data from Bloomberg has analysts forecasting the stock gaining 20% to $23.00 over the next 12 months.

Note: Upside is implied by average analysts price target.

4. LHC Group ( LHCG) engages in providing post-acute health care services to patients through its home nursing agencies, hospices and long-term acute care hospitals. The company operates in two main segments: home-based services and facility-based services.

For the second quarter of 2011, net service revenue increased to $161 million from $153.6 million in the year-ago quarter. Net income for the quarter stood at $9.8 million, or 53 cents per share. Quarterly organic growth in new home health admissions was 4.8%. The company recorded revenue of $322.8 million for the first half of 2011, vs. $298.8 million in the same period last year.

Quarter-over-quarter, net service revenue from home-based services grew 4.6%, while that from facility-based services rose 6.3%. Cash balance stood at $9.2 million compared to $1.3 million as of June 2010. Home-based locations increased to 260 during the quarter from 235 in the year-ago quarter, while hospice locations expanded to 32 from 21 for the same period.

For full year, the company estimates fully diluted earnings per share to range from $2.15 to $2.25 and annual net service revenue between $640 million and $650 million. Recently, LHC Group announced it would invest $1.3 million to expand and renovate Louisiana Family Fitness Center on Heather Drive in Opelousas.

Of the 11 analysts covering the stock, 36% recommend a buy and the remaining rate a hold. There are no sell ratings on the stock. Analysts surveyed by Bloomberg expect the stock to gain an average 33.5%, to $24.63, over the next 12 months.

Note: Upside is implied by average analysts price target.

3. Lincare Holdings ( LNCR) provides home oxygen and other respiratory therapy services. The company operates across 48 states serving almost 750,000 customers through 1,090 operating centers. It provides a variety of durable medical equipment (DME) and home-infusion therapies in certain geographic markets.

For the second quarter of 2011, the company reported net revenue of $449 million, up 7.3% from the year-ago quarter. This growth resulted from acquisitions and 12.3% internal. Net income for the quarter stood at $42.8 million, or 45 cents per share. During the quarter, Lincare added 13 new operating centers, taking the total number to 1,106 as of June 2011.

The company generated $131.8 million cash from operating activities during the first six months of 2011 and invested $57.7 million in net capital expenditure and $73.0 million in business acquisitions. With a current dividend yield of 2.8%, the company paid a dividend of 20 cents per share in July.

Subsequent to the acquisition of a specialty pharmacy provider in the first quarter of 2011, LNCR foresees strong market demand for its anti-coagulation testing business and has close to 10,000 customers using the service. Moreover, Lincare has completed the acquisition of companies that are contracted to provide home oxygen services in seven of nine competitive bidding markets and positive airway pressure therapy in eight of nine markets. It is awaiting final approval by the Centers for Medicare and Medicaid Services on the assignment of those contracts.

Of the 11 analysts covering the stock, 45% recommend a buy and the rest rate it a hold. There are no sell ratings on the stock. Data from Bloomberg has analysts forecasting the stock up 36.5%, to $29.10, in the upcoming 12 months.

Note: Upside is implied by average analysts price target.

2. Amedisys ( AMED) provides home health care services to the chronic, co-morbid, aging American population. The company operates in two segments: Home health and hospice.

For the second quarter of 2011, Amedisys reported net service revenue of $373.7 million and net income of $21.7 million, or 75 cents per share. For the quarter, the hospice segment's same-store Medicare revenue growth was 22%, while hospice admits increased to 3,740 from 2,874 in the year-ago quarter.

Overall, hospice agencies increased to 90 during the quarter from 72 in the same period of the prior year. Meanwhile, both home and health agencies acquired stood at 22 compared to 1 in the year-ago quarter.

For the full fiscal year, the company estimates net service revenue to be in the range of $1.475 billion to $1.5 billion. Diluted earnings per share are projected between $2.2 and $2.4. The guidance also includes the effect of the recent Beacon acquisition, AMED says.

Of the 13 analysts covering the stock, 15% recommend a buy and 77% recommend a hold. Analysts polled by Bloomberg expect the stock to gain an average 45.9%, to $23.83, over the next 12 months.

Note: Upside is implied by average analysts price target.

1. Gentiva Health Services ( GTIV)provides home health services and hospice care to more than 350,000 patients across more than 475 community locations nationwide.

For the second quarter of 2011, the company reported net revenue of $456.9 million, a growth of 54% from the year-ago quarter. The share of hospice revenue in total revenue increased to 43% from 7% in the same quarter last year. The hospice segment witnessed a multi-fold increase in admissions to 13,900 from 1,500 in the year-earlier quarter. Revenue per patient day increased to $154 from $136 earlier. For the home health segment, total episodes increased to 71,600 from 69,800 in the year-ago quarter.

For full-year 2011, the company estimates net revenue in the range of $1.8 billion to $1.85 billion and adjusted income from continuing operations between $2 and $2.2 on a diluted per-share basis. The guidance includes the impact of its Odyssey acquisition and an approximate 5% decrease in Medicare home health reimbursement rates vs. fiscal 2010.

Wells Fargo recently announced it owns 3.3 million shares, or 10.68%, of Gentiva's common stock, worth $23.58 million. Gentiva has announced it has agreed to sell its remaining equity stake in CareCentrix Holdings, resulting in net cash flow of $65 million to $70 million. Besides, the company will continue to hold a $25 million note receivable bearing interest at 10% per annum.

Of the 10 analysts covering the stock, 30% recommend a buy and 60% suggest a hold. Analysts polled by Bloomberg foresee the stock gaining an average 60%, to $11.67, over the next 12 months.


In conclusion, the industry is growing. Health care spending in the U.S. is projected to surpass $1 trillion in 2011, growing faster than the GDP, as per a latest report cited in Today's Medical Developments. Meanwhile, the U.S. is experiencing a reduction in the number of hospitals and hospital beds. As a result, health care is getting more personal.

There is a rapidly growing trend in the health care industry to develop and deploy smaller, sophisticated medical device technology for remote use. This has further catalyzed the shift from medical care in a hospital setting to home-based services, making life more convenient and less stressful for patients.

In August 2011, though the non-farm payroll report from the U.S. showed zero growth in the job market, the health care industry added 29,700 positions. Within its sub-segments, robust job growth was recorded in home health care services, with the addition of 6,300 jobs. Nursing and residential care facilities also increased hiring in August, adding 3,900 jobs.

As per the National Association for Home Care & Hospice, almost 12 million individuals received home-based health care from 33,000 providers as of 2010. Further, the NAHCH says annually 3.5 million Medicare beneficiaries receive home health care to recover from a serious injury or illness -- a significant cost saving when compared to popular care settings.

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