Almost Family: Home health-care firm makes itself at home
With nearly 20 million Americans reaching retirement age in the next 12 years, home health-care companies are ready to pull up a seat and make themselves at home; more than 70% of home health-care patients are over 65, according to government statistics.
The Center for Medicare and Medicaid Services, which tracks this data, says home health expenditures in the United States were $52.7 billion in 2006 and projects them to rise to $119 billion by 2017. Almost Family, Inc. (Nasdaq:AFAM), already active in nine states and an aggressive acquirer, seems poised to benefit from that growth.
The Louisville, Ky.-based company, which realizes almost half of its business in Florida, blew out analysts’ expectations with its first-quarter earnings report on May 6, showing a 47.5% increase in earnings per share, to $0.44 from $0.30, compared with the consensus estimate of $0.36. The quarter ended March 31.
The stock shot up to its current low $20s level from about $19, prompting Jefferies & Co. to exercise in part its option to buy overallotment shares from the April public offering it underwrote, buying 262,500 shares at the offering price of $17.75 and bringing the total net proceeds from the share sale to $41.7 million.
Avondale Partners raised its earnings estimate for 2008 as a whole to $1.48 from $1.27 and for 2009 to $1.60 from $1.34, not taking into account any new acquisitions, which the analysts consider likely. Avondale reiterated its “market outperform” rating on the stock.
The Avondale analysts noted the company’s strong revenue growth in the most recent quarter, 22.2% to $39 million, was driven by a 30% increase in the visiting-nurse segment of the company’s business that is Medicare-certified.
Combined with strict control of expenses, this growth enabled Almost Family to lift its EBIT margin by 130 basis points, to 11.4%, and register a 43% increase in EBIT to $4.4 million, 21.6% ahead of Avondale’s expectations.
About 17% of the overall 30% gain in visiting nurse segment revenue was organic, with the rest coming from acquisitions. The acquisition on March 27 of Apex Home Healthcare Services, the market leader in Jacksonville, Fla., with $16 million in annual revenue, will continue the trend in the current quarter, Avondale analysts said. The company has a pipeline of further acquisitions, including one with a possible $40 million in annual revenue, in the second half of the year. The company used most of the proceeds from the share sale to repay debt, so it is in strong financial position to make further acquisitions.
Revenue for the full year is forecast to be $164.5 million, a gain of nearly 25% from $132.1 million in 2007.
Almost Family was founded in 1976 and known as Caretenders HealthCorp. prior to its name change in 2000. The company currently offers visiting-nurse and personal-care services in Florida, Kentucky, Ohio, Connecticut, Massachusetts, Alabama, Indiana, Illinois and Missouri. It provides Medicare-certified in-home skilled nursing services in 53 locations and the more custodial personal-care service in 23 locations.
Almost Family preserves the names of local agencies it acquires and maintains a decentralized management structure for the providing of services. But it has centralized administrative functions and adopted a system of metrics and monitoring to maximize performance.
Quality and consistency across trade names, locations and regions is maintained through the company’s “senior advocacy” philosophy, which trains caregivers to look beyond the obvious needs of the patients and be advocates for their physical, mental and emotional needs, with the ultimate outcome of allowing them to age in-place. This philosophy, along with a focus on the home-bound, geriatric population, leads to improved health outcomes and increased referrals, the company says.
The company’s focus, and the thrust of its acquisitions, has been in the higher-margin visiting nurse segment. The Avondale analysts see continued consolidation in the fragmented home health-care industry, spurred on by new requirements in Medicare reimbursements that will put increased pressure on marginal operators.
While these new rules don’t fully take into account increases in labor and other costs, they will put pressure on the company’s demonstrated ability to integrate acquisitions efficiently and to use its operating leverage in start-up situations. These factors should enable the company to maintain or expand its margins, the Avondale analysts say. Nearly 87% of Almost Family’s revenue depends on reimbursements from Medicare (56%) or Medicaid and other programs (31%).
Avondale’s current target for the stock is $25, while the median target among the three analysts who follow the stock is $29. The 52-week low was $13.69 last August and the 52-week and all-time high was $25.03 on May 27. At closing on Thursday, shares were at $23.89. Almost Family has a market cap of $188 million.
About the Author
Contributing author Darrell Delamaide is a freelance writer and editor based in Washington, D.C. He has specialized in business and finance over a long career, writing for Barron's, Dow Jones, Institutional Investor, and Bloomberg, among others.
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