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Here's Why You Should Retain LHC Group (LHCG) Stock for Now

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LHC Group, Inc. LHCG is well poised for growth in the coming quarters, backed by its slew of buyouts and joint ventures (“JV”) over the past few months. A robust first-quarter 2021 performance, along with a broad array of services, is expected to contribute further. However, stiff competition and regulatory bottlenecks persist.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 25.1% compared with 11% growth of the industry and 34.6% rise of the S&P 500 composite.

The renowned post-acute healthcare service provider has a market capitalization of $6.40 billion. The company projects 13.7% growth for the next five years and expects to maintain its strong performance. Further, it has delivered an earnings surprise of 25% for the past four quarters, on average.

Zacks Investment Research
Zacks Investment Research

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Let’s delve deeper.

Strong Q1 Results: LHC Group’s solid first-quarter 2021 earnings, along with year-over-year uptick in the bottom line, buoy optimism. The company continues to gain from hospice admissions that witnessed organic growth on a year-over-year basis. Expansion in both gross and operating margins bodes well. A raised 2021 outlook boosts our confidence on the stock.

Strategic Buyouts & JVs: We are optimistic about LHC Group’s robust growth opportunities via buyouts and JVs. The company, this month, signed a definitive agreement to acquire Heart of Hospice from Charleston, SC-based EPI Group, LLC.

In May, LHC Group entered into an acquisition agreement wherein it agreed to purchase two Casa de la Luz provider locations in Tucson, AZ (anticipated to be completed on Jul 1, 2021, subject to certain customary closing conditions). In April, the company, along with JV partners Texas Health Resources and Methodist Health System, announced an agreement to purchase and share ownership of Fort Worth, TX-based Regent Home Health.

Broad Array of Services: LHC Group’s wide array of services through its diverse business segments, which have also been instrumental in driving the top line, buoy our optimism. Within the home health services arm, nurses, home health aides and therapists work closely with patients and their families to design and implement individualized treatment plans in accordance with a physician-prescribed plan of care. The hospices segment offers a wide range of services, including pain and symptom management, and counseling.

Further, the company has been sourcing adequate personal protective equipment kits for patients and clinicians since the onset of the pandemic.

Downsides

Regulatory Bottlenecks: The health care industry is highly regulated and is required to comply with federal, state and local laws which significantly affect LHC Group and other similar companies. Notably, these laws and regulations are extremely complex, and in many instances, the industry does not have the benefit of significant regulatory or judicial interpretation.

Stiff Competition: LHC Group operates in a highly competitive industry characterized by a fragmented home health care market. Some of its competitors are MedTech bigwigs like Amedisys, Inc. AMED, who have greater resources and better access to capital. Even local and regional providers of home health service pose stiff competition. These include facility- and hospital-based providers, visiting nurse associations and nurse registries.

Estimate Trend

LHC Group is witnessing a positive estimate revision trend for 2021. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 7.6% north to $6.35.

The Zacks Consensus Estimate for the company’s second-quarter 2021 revenues is pegged at $548 million, suggesting a 12.5% improvement from the year-ago quarter’s reported number.

Key Picks

A couple of better-ranked stocks from the broader medical space are AMN Healthcare Services Inc AMN and National Vision Holdings, Inc. EYE.

AMN Healthcare’s long-term earnings growth rate is estimated at 6.5%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Vision’s long-term earnings growth rate is estimated at 23%. It currently sports a Zacks Rank #1.

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