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Here's Why You Should Retain Amedisys (AMED) Stock for Now

Zacks Equity Research
·4 min read

Amedisys AMED is progressing well with strategies like acquisitions and international expansion. However, factors like escalation in operating expenses and tough competition are likely to offset the positives to some extent.

This $5.48-billion leader of hospice care expects earnings growth of 14.2% over the next five years. Also, the company has a trailing-four quarter positive earnings surprise of 19.6%, on average.

In the past six months, the stock has rallied 24.6% against a 30.2% decline of its industry.

Let’s delve deeper into the factors that substantiate the company’s Zacks Rank #3 (Hold).

Acquisitions and Partnerships to Add Value: In July 2019, the company announced a crucial partnership with ClearCare, the personal care industry's leading software platform with 4,000 personal care agencies in every zip code in the United States. The company continued benefiting from the partnership during the fourth quarter. Amedisys is also benefitting from the recently-closed acquisitions of hospice care providers — RoseRock Healthcare and Compassionate Care Hospice . The company closed the acquisition of Asana hospice in January 2020.

 

 

Bright Personal Care Prospects: Recently, the company integrated a new operating segment within its business – Personal Care. Moreover, the company is working on expanding the geographical presence of the Personal Care business through inorganic expansion. Amedisys is integrating tuck-in acquisitions like Bring Care Home, East Tennessee Personal Care Services and Intercity. According to the company, these buyouts will expand its personal care footprint outside of Massachusetts and Florida. Apart from this, the company’s recent deal with ClearCare creates an opportunity to establish a partnership with Personal Care agencies using the ClearCare platform. This segment is expected to continue driving growth for the company.

Upbeat Guidance:Net service revenues for 2020 are projected between $2.12 billion and $2.16 billion. Adjusted earnings are expected in the band of $4.90-$5. This indicates continuation of the company’s bullish trend.

However, there are a few factors deterring growth.

Escalating Costs a Concern: During the fourth quarter, expenses on salaries and benefits advanced 20.2%. Other expenses increased 12.6%. Operating margin accordingly contracted 10 bps to 8.3% from the prior-year level. This concerning trend is expected to persist in the near future.

Competitive Landscape: The market for home health and hospice is fragmented with a number of small local providers. With few barriers to entry in this market, Amedisys primarily faces tough competition from local privately and publicly-owned and hospital-owned health care providers. It competes based on the availability of personnel, the quality of services, expertise of visiting staff and the price of services.

Estimates Trend

The company is witnessing a positive estimate revision trend for 2020. Over the past 30 days, the Zacks Consensus Estimate for its earnings has risen 0.2% to $5.05 per share.

The Zacks Consensus Estimate for the company’s first-quarter 2020 revenues is pegged at $515.2 million, suggesting a 10.2% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are ResMed Inc. RMD, Medtronic plc MDT and Hill-Rom Holdings, Inc HRC.

ResMed has a projected long-term earnings growth rate of 12%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medtronic’s long-term earnings growth rate is estimated at 7.4%. The company presently carries a Zacks Rank #2.

Hill-Rom’s long-term earnings growth rate is estimated at 11.1%. It currently carries a Zacks Rank #2.

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Medtronic PLC (MDT) : Free Stock Analysis Report
 
Amedisys, Inc. (AMED) : Free Stock Analysis Report
 
ResMed Inc. (RMD) : Free Stock Analysis Report
 
Hill-Rom Holdings, Inc. (HRC) : Free Stock Analysis Report
 
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