The Zacks Medical - Outpatient And Home Healthcare industry comprises of companies that provide ambulatory care in an outpatient setting or at home. These companies utilize advanced medical technologies for diagnosis, observation, consultation, treatment and rehabilitation services.
The industry participants also include operators of HMO medical centers, kidney dialysis centers, freestanding ambulatory surgical units, emergency centers and other outpatient care centers.
Here are the three major industry themes:
- Cost Effectiveness & Favorable Demographics: The primary advantage of the outpatient clinics is cost effectiveness. The outpatient medical care clinics do not retain patients for long hours (overnight) or charge exorbitantly. Notably, modern day outpatient clinics offer a broad spectrum of treatment and diagnostic options, and even minor surgical procedures. Financial incentives like health plans and government program payment policies supporting services in lower-cost care settings are also responsible for the growth in outpatient care. This is the primary reason behind middle-class Americans, making up more than 62% of the total population, preferring outpatient clinic visits. The industry should also benefit from the rising geriatric population, growing prevalence of chronic diseases and reduction of burden for healthcare sector owing to substantial decline in the daily patient admissions.
- Drug Rehabilitation Centers See Rising Demand: Americans are increasingly getting addicted to a variety of drugs, which is affecting health and family to a large extent. This is where outpatient rehabs will come into play since the treatment they provide is comparatively cheaper than the inpatient and residential units. Further, the recent national epidemic of ‘Youth Opioid Abuse’ is likely to drive demand for outpatient rehab centers. In this regard, MedTech behemoth DaVita Inc (DVA) deserves a mention. In 2017, The Everett Clinic, a division of DaVita, received the Washington State Medical Association's (WSMA) highest award for patient safety in the category of excellence for its chronic opioid therapy work.
- AI’s Dominant Role: Artificial intelligence or AI has been a roaring success in healthcare, taking the outpatient and home healthcare space by storm as well. Outpatient companies prefer bots and automated techniques for managing health information. With the help of AI, hospitals will achieve better outcomes, while patients will receive more efficient and personalized care. The outpatient industry has been churning out huge profits from Electronic Health Records, Revenue Cycle Management, eLabs, ePrescriptions and many more. Notably, Quest Diagnostics’ (DGX) Quanum solutions unit is an AI platform that streamlines 20 billion laboratory data test results and other health information for population health management and clinical care.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #23, which places it in the top 9% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry’s Stock Market Performance
The industry has underperformed both its sector and the Zacks S&P 500 composite in the past year.
The industry has lost 22.5% over this period compared with the S&P 500’s decline of 1.6%. Meanwhile, the broader sector fell 11.9% in the same timeframe.
One Year Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month Price-to-earnings (P/E) ratio, which is commonly used for valuing medical stocks, the industry is currently trading at 18.19X compared with the S&P 500’s 16.35X and the sector’s 19.22X.
Over the last five years, the industry has traded as high as 20.38X and as low as 14.76X, with the median being at 18X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
Technological advancement has led to the rapid adoption of outpatient services that has made procedures simpler and less time consuming. Outpatient rehabs have also played a major role.
Here are three stocks that either have a Zacks Rank #1 (Strong Buy) or 2 (Buy), which investors can take a look at. These stocks are also well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
Amedisys, Inc. (AMED): Amedisys provides home health and hospice services throughout the United States to the growing chronic, co-morbid, and aging American population. The stock carries a Zacks Rank of 2.
For this Baton Rouge, LA-based company, the Zacks Consensus Estimate for 2019 revenues indicates an improvement of 18.5%. It has an average positive earnings surprise of 19.98% in the trailing four quarters.
Price and Consensus: AMED
LHC Group (LHCG): LHC Group serves as a post-acute care partner for hospitals, physicians and families in the United States. From home health and hospice care to long-term acute care and community-based services, the company delivers high-quality, cost-effective care that helps patients manage their health at home. The stock carries a Zacks Rank #2.
For this Lafayette, LA-based company, the Zacks Consensus Estimate for 2019 revenues suggests growth of 15.8%. It has an average positive earnings surprise of 4.24% in the trailing four quarters.
Price and Consensus: LHCG
Chemed Corporation (CHE): The company’s VITAS Healthcare segment provides hospice and palliative care services for patients with terminal illnesses. VITAS offers all levels of hospice care in a given market, including routine home care, outpatient care and continuous care. The company’s operating businesses are managed on a decentralized basis. Since its inception, Chemed has been part of 12 significant acquisitions or divestitures of diverse business units. The stock sports a Zacks Rank of 1.
For this Cincinnati, OH-based based company, the Zacks Consensus Estimate for 2019 revenues indicates an improvement of 8.9%. It has an average positive earnings surprise of 4.81% in the trailing four quarters.
Price and Consensus: CHE
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LHC Group (LHCG) : Free Stock Analysis Report
DaVita Inc. (DVA) : Free Stock Analysis Report
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