LHC
Group (LHCG, $106.93): “Paving the Path for Value-Based Healthcare”
By:
Luke Smrek, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• LHC Group (NASDAQ: LHCG) provides post-acute health care services to
patients in their home nursing agencies, hospice agencies, community-based
service agencies, and long-term acute care hospitals. LHC Group was founded in
1994 and is headquartered in Lafayette, Louisiana.
• Through the acquisition of Almost Family in March 2018, LHCG
significantly increased their market exposure in the home health care services
from 5% to 10%. This acquisition will be immediately accretive to earnings with
about $25 million in cost synergies.
• Consolidated net
service revenue for the year ended December 31, 2018 $1.8 billion compared to
$1.1 billion for the same period in 2017 which is an increase of $747.4
million, or 70.3%. This revenue growth is 2018 was primarily due to
acquisitions during 2018 and an increase in same store growth by 36.3%.
• LHC Group has a long
track record of successfully partnering with hospitals and health systems. They currently have 76 joint venture
partnerships, which includes 336 hospitals. The federal and state governments
are committed to increasing home health utilization, as it is a lower cost
option compared with skilled nursing and other post-acute care providers. As a
result, the firm has a significant pipeline of joint ventures, which is
expected to accelerate revenue growth.
• LHC Group is a leader
in home health and with the industry moving towards a value-based payment
system, the company is well positioned to lead this change. Organic growth
continues to be fed by industry leading quality scores and co-location
strategy.
Key
points:
Organic growth in home health admissions and revenue
and growth in hospice revenue continue to drive earnings growth. For the year
ended December 31st, the home health segment increased by 8.5% and
6.6% in the last three months. The hospice segment grew by 3.4% over the last
year and is continuing its steady growth.
Key growth drivers remain
in place for LHC Group as the they continue to maintain disciplined capital
allocation with new joint ventures and other mergers and acquisitions. Improving
patient quality care, lowering costs, and improving satisfaction scores is what
will continue to drive the company.
For the year 2019,
expected annual growth in earnings is 27.7% which is well above the industry
average for healthcare of 13.2%. LHCG’s revenue growth is expected to be 9.6% for
the year which is above the healthcare industry average of 7.2%. These metrics
show that LHC Group will continue with steady and high earnings growth while
exceeding the industry in earnings and revenue growth.
LHCG has not efficiently
used shareholders’ funds in the last year with a return on equity of 5% which
is well below the industry average of 14.8%. The company will look to improve
on this by widening their operating margins on sales, specifically by reducing
operating expenses.
What
has the stock done lately?
The AIM equity fund
purchased LHC Group on October 15th, 2018 at a price of $92.30 and
since then it has risen to a high of $115.54 on March 22nd, 2019.
The stock is currently at $106.93 which is 7.50% below the high. Since the
initial date of purchase, the stock has increased by 13.68% to its current
price. Similarly, over the last three months LHC Group has seen an increase in
price by 14.06%. The company will look to continue their strong performance
over the next few quarters.
Past
Year Performance:
LHCG has increased in stock price the
last year by 13.90%. Recent performance in earnings and revenue indicate that
2019 will continue to be a strong year. Shareholder return over the last year
was 74.9% which is well above the U.S healthcare industry return of 4.9%. These
figures show that future cash flows for 2019 will continue to increase.
Source:
FactSet
My
Takeaway:
LHC Group has performed
well over the last year with their increasing focus on reducing costs,
improving patient care quality, and satisfaction scores. As the healthcare
industry looks to increase earnings and revenue by 13.2% and 7.2% respectively,
LHCG is well above those marks and will look to gain market share in 2019 as an
industry leader. LHC Group is continually looking for growth from existing and
potential joint venture partners and acquisitions. Continuing to make strategic
moves could keep the company growing at a fast pace, and leaves room for the
company to take big strides in the home health care industry.
Source:
FactSet
