Kevin Ellich, Principal and Senior Research Analyst at Piper Jaffray & Co.: Home Health Prospective Payment System Changes Provide 2014 Catalyst for Selected Stocks

Wall Street Transcript

67 WALL STREET, New York - January 3, 2013 - The Wall Street Transcript has just published its Best Biotechnology and Pharmaceutical Investing Interviews offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Biotechnology and Pharmaceutical Investing

Companies include: AmSurg Corp. (AMSG), Quest Diagnostics Inc. (DGX), Laboratory Corp. of America Ho (LH), DaVita, Inc. (DVA), MEDNAX, Inc. (MD), MWI Veterinary Supply, Inc. (MWIV), Nxstage Medical, Inc. (NXTM), Unitedhealth Group, Inc. (UNH) and many others.

In the following excerpt from the Best Biotechnology and Pharmaceutical Investing Interviews, an expert analyst discusses the outlook for the sector for investors:

TWST: For the group overall, how are stock valuations trending?

Mr. Ellich: The valuations are still lower than where they have historically traded, but typically you will see this group trading, on a p/e basis, relatively close to one times PEG, a PEG of 1, roughly in line with growth.

And then, on an enterprise value to EBITDA basis, a lot of these stocks trade around seven to eight times. If any of them were to be taken private, I think the valuation would be closer to the eight- to 10-times range.

Mednax acquires smaller businesses in the three- to five-times EBITDA range, others acquire in the four- to six- or five- to seven-times range, so all the deals that they do are accretive.

TWST: Is there anything I didn't ask about that you want to include?

Mr. Ellich: The only group we didn't touch on is home health, which is still unloved.

TWST: Why is that?

Mr. Ellich: They face a number of challenges on the regulatory and reimbursement front, but I think we are getting near a point where investors could get interested again. I think there is little question that home health has a seat at the table in terms of helping to lower costs and provide better care for patients, but the government has been after this group for a couple of years now. We've seen a lot reimbursement cuts.

In 2014, the Home Health Prospective Payment System will be changed again, and I think that could be a catalyst for the group as a whole. Also, this year in October, penalties will go into place for hospitals for 30-day readmission rates for a few conditions once patients are discharged. I believe that these penalties against hospitals could drive more utilization and greater need for home health services.

Basically the thought is this, the patient's discharged, maybe they still need a little bit of looking after or care after they leave the hospital, so the physician orders home health...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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