4 Stocks to Bet on the Burgeoning Home Healthcare Industry
The home health industry is poised for tremendous growth driven by the growing geriatric U.S. population, the prevalence of chronic illness, high cost of treatment at inpatient settings and increased use of home healthcare technologies.
Players in the industry should continue to benefit from the changing demographics of the U.S. population. According to the AARP, by 2030, one in five Americans will be over the age of 65, adding up to 71.5 million seniors. Almost 90% of these individuals want to stay at home as they age, rather than being placed in a nursing home. Therefore the need for higher acuity patients to be taken care of in a home nursing environment should drive demand for services for home healthcare.
Also, continued pressure on the U.S. healthcare system to control cost will lead to a shift in care from higher-cost institutional in patient care settings to a lower-cost environment such as home health and outpatient locations. Per Garden View Research, home healthcare is a cost efficient alternative to expensive hospital stays. Treatment cost for acute care hospital is around $3,250.0 per day. On the contrary, home care cost is approximately $50 per day. The industry is, therefore, expected to see an increase in patient volumes, which should drive volume growth.
The industry should also gain from the Bipartisan Budget Act of 2018. In February 2018, the Congress passed the Bipartisan Budget Act of 2018 (BBA of 2018). Focusing on Home Health, BBA of 2018, aims at extending the home health rural add-on payment for four years, reducing the 2020 market basket update along with modifying the eligibility documentation requirements and reform to the Home Health Prospective Payment System (HHPPS). Per management of Amedisys, sustaining the 3% add-on for 2018 and 2019 works in favor of the company, by reducing its 2018 reimbursement impact from 1.4% to 0.7%.
Moreover, increased use of technology in healthcare has been one of the driving forces for the development of the home care industry. Per McKinsey, availability of new home care technologies such as Internet-enabled home monitors, apps for mobile health, and telemedicine have made delivery of advanced care to patients’ homes possible. It also reflects that the company has traveled a long way from the times when it provided services via products like walkers, wheelchairs, wall rungs and safety rugs among others. Continued technological innovation only points to the fact that sophisticated care at home is going to spur the industry.
High Industry Returns
The Zacks Medial-Health Maintenance Organization industry, which is a stock group within the broader Zacks Medical Sector, has outperformed both the S&P 500 and its own sector over the past year.
We see that the stocks in this industry have collectively gained 26% over the past year, while the Zacks S&P 500 Composite and Zacks Medical Sector have grown 18% and 4.9%, respectively.
Strong Industry Rank
A top Zacks Industry Rank signifies that more stocks within that group are likely to witness upward earnings estimate revisions, hinting at bullishness.
The Zacks Industry classification divides the business world into 16 sectors comprising 60 medium or M-level industries and 260 plus or X-level industries. We rank all 260 plus X-level industries based on the earnings outlook for the constituent companies in each industry.
One of the top-ranked industries currently is Outpatient and Home Healthcare. It carries a Zacks Industry Rank #55 (top 22% of the 255 Zacks industries). Our back-testing shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1
Given the strong positioning of the industry, investing in the stocks of this space should fetch good returns.
Attractive Stocks
Each of the below mentioned stocks have outperformed the industry in a year's time.
Amedisys, Inc. AMED, is busy developing and acquiring new business lines to complement its existing home care and hospice business. Over the past year, the company made a number of strategic acquisitions. In July, it inked a deal to buy Bring Care Home, a personal care provider in northeastern Massachusetts. Earlier, it had acquired East Tennessee Personal Care Service, a personal care provider headquartered in Knoxville, TN.
According to Amedisys, these buyouts will enlarge the company’s personal care footprint outside of Massachusetts and Florida. Also, last month, the company announced a minority equity investment in Medalogix — a Home Health and Hospice predictive modeling and analytics company in Nashville.
The stock carries a Zacks Rank #1 (Strong Buy). It has seen the Zacks Consensus Estimate for current-year earnings being revised 0.9% upward over the last seven days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has grown 130% in a year’s time.
Chemed Corporation CHE provides home healthcare services via its segment VITAS Healthcare. Though, over the recent past, Chemed’s VITAS business was in trouble due to certain admission coding changes initiated by the Centers for Medicare & Medicaid Services. However, management noted that the recent admission trends have been positive, which should continue in the coming quarters.
It has seen the Zacks Consensus Estimate for current-year earnings being revised 2.1% upward over the last 60 days.
The stock has grown 60% in a year’s time.
Encompass Health Corporation EHC carries a Zacks Rank #2 (Buy). The company recently acquired Camellia Healthcare, which added 18 hospice and 14 home health locations to its portfolio. The company also opened three home health locations in Georgia, AL and Idaho and acquired one hospice location in Nevada. Later this year, the company is expected to open new inpatient rehabilitation hospitals in Murrells Inlet, South Carolina and in Winston-Salem, NC.
The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 4.4% upward over the last 60 days.
The stock has gained 77% in a year’s time.
Hanger Inc. HNGR delivers orthotic and prosthetic patient care, and distributes O&P products and rehabilitative solutions. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 3.8% upward over the last 30 days
The stock has gained 100.6% in a year’s time.
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