LHC Group (LHCG, $114.61): “Can the LHC Group reach the end of this Marathon?” By: Clarissa Vazquez, AIM Student at Marquette University

LHC Group (LHCG, $114.61): “Can the LHC Group reach the end of this Marathon?”

By: Clarissa Vazquez, 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) is a market leader that operates in the United States by providing post-acute healthcare services. LHCG provides care for patients in nursing homes, hospice, community-based living spaces, or in long-term acute care hospitals.

·         LHCG operates in five main segments: home health is their largest segment which makes up 71.4%, hospice makes up 11%, home and community-based makes up 9.5%, facility-based makes up 6.3%, and healthcare innovations make up 1.8%.

·         LHCG is currently entering into a joint venture model to continue to grow their business. In September 2019, LHCG finalized its agreement with Norton Healthcare company. Through this joint venture, the two organizations will share ownership of the Caregivers Health Network. They will be able to provide patients and families in Louisville high-quality affordable healthcare services in the comfort of their homes.

·         LHCG’s management is well versed in keeping track of payments and regulatory reform. The hospital LHCG partners with help offset the impact of PDGM given higher payments from institutional admission sources.

·         LHCG is focused on cutting cuts, but with providing the best care; they believe that optimizing care plans that move towards more efficient industry benchmarks can generate 1-7% in savings. They seek to do this through finding a proper mix of therapy staffing which includes highly skilled nurses which came from when LHCG acquired AFAM’s LPN mix which is 35-40% vs legacy LHCG’s LPN mix of 55-60%.

·         LHCG has gone up since being added to the AIM portfolio which was brought on November 9, 2018, for $94.47 which now is currently trading at $114.61, which is showing a 21.31% increase from the purchase price.

Key points:

LHC Group is highly focused on providing the proper mix of care to their patients which will help result in high-quality care along with cutting down their cost. By finding companies that fit into their joint venture model, they continue to grow which is allowing them to find success in this model. We are starting to see this model be played out with their newest joint venture with Norton Healthcare that was just finalized in September so we will start to see this partnership grow in the coming months. 

LHC Group’s management team is highly qualified to continue to find ways to grow the company and navigate any challenges they are going to be facing from regulators and reforms. The team knows how to ensure that their partnerships provide support to by offsetting any impacts that they might face in the coming months which is primarily coming through the new reform policies and coming election.

What has the stock done lately?

Since reporting earnings on June 30th, LHCG has been staying very consistent and has been trading around $120-$125 up until the end of September. In October, we started to see a correction take place in the overall market we then saw the stock drop to 108.60 at their lowest point being on October 1, 2019. Since then it has been trading around $114 once again. We are still seeing analysts rating LHCG as a buy with a price target of $145. This is partly due to the fact they are still consistent on the growth plan and they are working towards finding ways to decrease their costs without impacting their quality of treatment.

Past Year Performance: 

LHCG is up 29.47% since October 2018; throughout the past year, we saw LHCG reach a high of $126.58 on July 31, 2018. We saw their stock price drop from $113.56 to $108.60 due to the overall correction in the market. Since then we see them moving on an upward trend and will be seeing changes in the stock once earnings are released on November 6, 2019. 

Source: FactSet

My Takeaway:

LHCG Group Inc. is still succeeding by providing patients post-acute care, and management is executing on their plans to help grow the company moving forward. Overall, the company is consistent and grows accordingly to what management is stating. LHCG is still looking to find ways to grow its business through new joint ventures which they believe will help grow their organic top line along with seeing 90% and high in ratings based on patients rating their quality of care.

HOYA Corporation (HOCPY, $84.53): “HOYA on a High” By: Luke Smrek, AIM Student at Marquette University

 HOYA Corporation (HOCPY, $84.53): “HOYA on a High”

By: Luke Smrek, AIM Student at Marquette University

Disclosure: The AIM International 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

• HOYA Corporation (OTC: HOCPY) engages in the manufacture and sale of imaging and optical products, electronics, and medical-related equipment through two main segments: Life Care and Information Technology. The company makes electro-optical components used in high-tech and medical products. The company was founded in 1941 and is headquartered in Tokyo, Japan.

• In July 2019 HOYA received authorization by Amakusa City in Kunamoto Prefecture, for a scotopic vision eyeglass-type wearable device which assists individuals who have difficulty seeing in dark places due to nyctalopia. HOYA aims to expand this to other local governments in Japan.

• For the first quarter ended July 30, 2019, net profit has increased by 6% compared to the first quarter in 2018. Profit from ordinary operating activities increased by 9% compared to 2018 mainly due to decreasing expenses and increasing net profit in the IT segment driven by mask and blank sales.

• Contact lenses have proved to be a large driver in the Life Care segment with sales growing from new customers and unit price increases. With the acquiring of a retailer in the Chugoku region, HOYA looks to continue with their strong performance with contact lenses. Eyeglass lenses struggled with capacity constraints and a result sales only grew by 1%. A second factory in Vietnam is set to go online in November and mainly target mass merchants in North America.

• HOYA Corporation is a market leader in eye glass and optical products and is poised to continue being in a unique position in the industry as healthcare begins to collaborate with technology. Healthcare innovation is being driven by rapidly developing technology within the industry to take patient care to a higher level.

Key points: 

Organic growth for the first quarter in the Life Care segment grew by 3%. It was led by an increase in contact lenses which saw a 7% YoY sales growth and intraocular lenses with 5%. Growth in the Life Care segment is expected to be driven by M&A’s in IOL’s and continued growth of contact lenses.

Masks and blanks have been a large driver in the IT segment the last few months with 22% YoY sales growth. Blanks were driven by 7nm tape-outs and EUV sales doubled to account for 29% of total blank sales. Mask sales were strong in the first quarter particularly in China, and going forward high growth is expected in the Chinese market due to the expansion in the external mask shop market.

For the year 2019, expected annual growth in earnings is 8.0% which is well below the industry average for medical equipment of 23.1%. HOYA’s revenue growth is expected to be 5.1% for the year which is below the industry average of 7.9%. While these metrics may show HOYA underperforming relative to the industry in the future, HOYA is a mature large cap company that consistently has around the same earnings growth each year so these metrics should not be worrying.

HOYA has efficiently used shareholders’ funds in the last year with a return on equity of 20.2% which is well above the industry average of 9.8%. The company will look to continue improving on this by increasing their high operating margins on sales, specifically by reducing operating expenses.

What has the stock done lately?

The AIM international equity fund purchased HOYA on March 4^th, 2019, at a price of $64.72 and since then it has risen to a high of $85.80 on September 9^th, 2019. The stock is currently at $84.53 which is 1.48% below the high. Since the initial date of purchase, the stock has increased by 30.60% to its current price. Similarly, over the last three months HOYA has seen an increase in price by 12.16%. The company will look to continue their strong performance over the next few quarters.

Past Year Performance: 

HOYA’s stock price has increased in the last year by 49.31%. Recent performance in earnings and revenue indicate that the rest of 2019 will continue to be a strong year. Shareholder return over the last year was 53.7% which is well above the U.S medical equipment industry return of 15.6%. These figures show that future cash flows for 2019 will continue to increase.

Source: FactSet

My Takeaway

HOYA has performed extremely well over the last year and since the initial purchase. They are increasing their high margins and focusing on increasing production capacity to generate even higher sales and get access to new markets. Management has successfully continued to meet earnings each quarter with new targets and goals being put in place to continue grabbing market share. Organic growth has been in the mid-to-high singles digits the last quarter and in the last few years, showing overall stability and the ability to meet earnings. With healthcare innovation relying more on technology, HOYA should continue with their strategic decisions that have been allowing the company to grow at a fast pace and take strides in the industry.

Source: FactSet

The Eighth Set of Fall AIM Program Student Equity Pitches on Friday, October 25 - Join Us in Person or On-Line!

AIM Class of 2020 Student Equity Presentations 

Friday, October 25th

The eighth set of fall AIM student equity presentations for the Class of 2020 will be on Friday, October 25th, 2019. 

   

Follow the link to access the student equity write-ups.  You can also find every write-up since AIM's inception in 2005 here.

October 25th Write Ups

Student	Company	Ticker	Fund/Sector
Matt Prinske	American Equity Investment Life Holding Company	AEL	Domestic Financials
Chez Daggs	Aimmune Therapeutics, Inc.	AIMT	Domestic Healthcare
Alex Penkwitz	YY, Inc. Sponsored ADR Class A	YY	International Technology
Jimmy Oddo	Encore Capital Group, Inc.	ECPG	Domestic Financials

• Location: Marquette University, College of Business Administration - Straz Hall, 1225 W. Wisconsin Avenue, Milwaukee 53233 - in Room 488 (AIM Room). 

• Presentation Times: 3:00 to 4:00 p.m. CST

• Link to PDF Student Equity Write-ups

If you are unable to attend, you can always view them via YouTube HERE.

A Current AIM Small Cap Equity Holding: Teladoc Health, Inc. (TDOC, $60.75): “TeleProblems on the Horizon?” By: Chez Daggs, AIM Student at Marquette University

Teladoc Health, Inc. (TDOC, $60.75): “TeleProblems on the Horizon?”

By: Chez Daggs, 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:

●      Teladoc Health, Inc. (NYSE: TDOC) is the largest telehealth company in the world offering virtual healthcare services to its customers. TDOC provides members with care and expertise from a portfolio of services and solutions for over 450 medical subspecialties. The company has a large network of physicians and other healthcare professionals in over 20 different languages in more than 125 countries, including the United States. As of their Q2 filing, TDOC had approximately 26.8 million paid members on their platform. Teladoc was founded in 2002 and is headquartered in Purchase, New York.

●  Despite shares getting bounced around in the market, TDOC’s business continues to perform better than expected, as shown by their recent Q2 earnings.

●      Amazon announces their entrance into telehealth, this could potentially mean trouble ahead.

●   TDOC’s BetterHelp business proves to be an innovative idea, keeping the company ahead of the game.

Key points:

TDOC was added into the portfolio last spring at around $61 a share and over the past 7 months has dropped as much as -16% from purchase to rising as much as +18% from purchase. Part of that negative run was due to a short report being released about the company’s relationship with Health Insurance Innovations (HIIQ). The report basically claimed that nearly 70% of TDOC’s revenues come from HIIQ. Multiple firms spoke with TDOC’s management to confirm the details of the accusations and it turns out that HIIQ is only a small contributor to TDOC’s overall revenues. The short report may have overestimated the amount of HIIQ’s contribution. They report their Q3 earnings later this October and may have to shed a little more light on this topic, but other than that I expect them to have another solid quarter being in line, or even beating on the top and bottom. I attribute this to the fact that telehealth companies still have not really penetrated the telehealth market. TDOC estimates there is still a total addressable market of about $57 billion. To give a brief recap of their Q2 earnings, TDOC had great results with revenues coming in above expectations, along with adjusted EBITDA. This was driven by membership visits hitting above expectations and overall strong organic growth. EPS was in line, but membership growth QoQ was lower than expected.

TDOC may be dealing with increased competition in the future as Amazon.com, Inc. (NASDAQ: AMZN) announced recently that they will be entering the telehealth space. They will pilot the program for their employees in Seattle and will offer health services through telemedicine as well as in-person care at home or the office through a mobile nurse. Amazon Care will also provide the option for prescription medicines to be delivered to the home. My assumption is if the program is deemed successful they will expand Amazon Care beyond its employees. TDOC’s price took a slight hit before rebounding, showing the market sees this move as a potential threat to TDOC.  Typically when Amazon enters a new market they shake up the industry and take out some of the players in its way. TDOC will be a bit different though considering they are a leader in telehealth already, and is also a disruptor themselves. TDOC has grown rapidly over the past 3-4 years with YoY revenue growth never coming in at less than 50%, and they are not expected to slow down any time soon. Since Amazon Care is starting off on a small scale, TDOC still has plenty of time to stay ahead of the curve.

One way in which they are staying ahead of the curve is through the growth of their BetterHelp business (around 15-20% of revenues), which offers diagnosis and treatment of behavioral health conditions. BetterHelp was announced in spring 2018 as a part of a strategic acquisition to grow the business. Behavioral health issues include stress/anxiety, depression, abuse, and more. Management stated in their recent earnings call that they expect the BetterHelp business to grow by another 50% in FY19. The majority of members meeting with these experienced psychiatrists, psychologists, therapists, and social workers are text based, but management is seeing more growth through voice and video. The National Alliance on Mental Illness state that about 1 in 5 U.S. adults experience mental illness each year, and suicide is the 2nd leading cause of death among people aged 10-34. TDOC has a great opportunity to help millions of members globally if they continue to focus their efforts on BetterHelp. 

What has the stock done lately?

As stated earlier, TDOC’s price has had a very rocky 2019 thus far. FactSet currently has their 5-year raw beta at 1.56, therefore, all of the huge swings we’ve seen this past year has not been well for TDOC’s stock. Over the past month, the stock is up to around $61 a share after climbing back from a 3 month low of about $55 a share. When compared to the Russell 2000, the AIM small cap benchmark, TDOC has outperformed the Russell over the past month up 9% vs. 0.5% for the Russell.

1 Month Stock Chart

Source: FactSet

Past Year Performance:

Over the past year (October 2018 - October 2019), TDOC shares hit an all-time high of $85 before tumbling down ~30%. And as stated earlier, TDOC shares have dropped ~16% from purchase. Their stock price continues to struggle with breaking past their resistance line at ~$70 a share, and consistently bounces off their support at ~$50 to $55 a share. The stock is currently trading at an EV/Sales multiple of 8.92x which is a tad bit under their 3-year average of 11.10x. Therefore, there is still room for upside in the horizon.

1 Year Stock Chart vs. Benchmark

Source: FactSet

My Takeaway:

TDOC should continue to stay in the AIM small cap portfolio as the market opportunity for telehealth continues to expand. We should ignore these short-term distractions as there is still a lot of alpha to be generated from this holding. TDOC has established themselves as a leader and the company has positioned themselves well in this industry. There is a significant opportunity for continued strong revenue growth if they continue to focus on their BetterHelp business and stick with their strategic move of growing mostly organically. Amazon announcing that they too will enter this market definitely sends a message to those competing in this area, so it will be interesting to see how that story plays out.

A Current AIM International Equity Holding: Aegon N.V. ADR (AEG, $4.12): “All Expectations Gone” By: Danny Smerz, AIM Student at Marquette University

Aegon N.V. ADR (AEG, $4.12): “All Expectations Gone”

By: Danny Smerz, 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:

•Aegon N.V. ADR (NYSE:AEG-US) Aegon N.V. is a holding company and is broken up into insurance, pensions, and asset management services. The company was founded in 1844, currently employs 26,543 individuals and is based in The Hague, the Netherlands.

• Mike Holliday-Williams will replace Adrian Grace as CEO on October 1^st.

•.AM Best has downgraded the Financial Strength Rating (FSR) as well as the Long-Term Credit Ratings.

• Management has reconfigured the company into three distinct categories: Manage for Value, Drive for Growth, and Scale up for the Future. They hope to leverage cross-border synergies and realize operational efficiencies through this new model.

•Aegon announced an agreement to sell its 50% stake in the variable annuity joint venture in Japan for proceeds of €130 million.

• AEG’s stock price has dropped 37.9% over the past 12 months.

Key points:

Aegon N.V. has greatly underperformed the market over the past 5 years and their current initiatives demonstrate an attempt to correct the downward trajectory that they are on. The first half of 2019 brought widening mortgage spreads (171 bps) which led to a decrease in the value of Aegon’s mortgage portfolio. While the company has seen an increase of 26% in their Net Income since 1H 2018, the €618 million fell short of expectations by about €200 million.

Specifically, within the company’s U.S. Retirement Plans and Variable Annuities segment, earnings were down €75 million due to lower average balances and increased expenses (U.S. consists of 52% of EBIT). The biggest segment impact was on their accident & health insurance sales which were down 45% to €117 million. This is attributed to management’s decision last year to discontinue certain product lines and lower voluntary benefits sales in the U.S.  Companywide, net deposits were down €2.7 billion off of €65 billion in gross deposits.

The management has worked to increase their Solvency Ratio to nearly 200% showing some promising signs. Additionally, the company has divested various heavy required capital areas, including sales of Transamerica Reinsurance; U.S. bank-owned life insurance, or BOLI, and corporate-owned life insurance, which has led to more of an asset-light balance sheet and focus on their core business. While these signs are encouraging, AEG’s outlook is still dismal at best.

What has the stock done lately?

Aegon N.V. has seen sales drop 9.57% over the past year while net income has dropped 69.92%. Operating Income has seen a 5 year operating income CAGR of -26.20%.

Past Year Performance:

 AEG is down 37.9% on the year and 14.2% over the past 6 months. The P/B is currently at 0.43x which is near its 10 year low and lags the industry average of 1.13x which implies the company is trading at a discount. However, company fundamentals will need to change in order for this relative valuation to be of substance.

Source: FactSet

My Takeaway:

The restructuring of AEG and the soon to be new “CEO” are steps in the right direction, however it may be too late for this 175 year old company. Nearly all performance and financial metrics for the company have slid over the past 5 years especially in the U.S. AEG has lagged due to poor financial management and increased competition as underwriting is fairly homogenous in its structure. However, AEG trades at a discount to its peers which means a potentially large upside if the current outlook changes.

Source: FactSet

  

Are you going to be in New York City on Friday, October 18th? Attend the Marquette CIRCLES Alumni Event!

Don't miss out on the Marquette CIRCLES event! 

Event includes a panel discussion of privacy in the digital age 
and four AIM student equity pitches!

We are excited to share that the Marquette CIRCLES program will kick off on Friday, October 18th in conjunction with the Marquette FMA New York City trip. As you may remember, Marquette CIRCLES is an award-winning networking program bringing alumni, parents, friends and students together based on industry and business interests. The event includes a special pre-reception where AIM students will get the opportunity to present their equity research recommendations to a crowd of industry professionals. The presentations will be followed by a panel discussion of guests including: 

• Moderator: Hazel Sanchez, CBS New York Reporter
• Chris Duffey - Senior Strategic Development Manager at Adobe 
• Jennifer Lorentz – Senior Counsel, Privacy & Data Protection at MasterCard
• Joseph Schuster – Vice President & Assistant General Counsel at Goldman Sachs
• Michael Zimmer – Associate Professor in the Department of Computer Science at Marquette University

Please follow the link below find more information about the CIRCLES event and instructions for registration. We hope you are able to join us!

Kimpton Hotel Eventi
851 6th Ave, New York, NY 10001

PROGRAM

5:30 p.m. to 6:30 p.m. Marquette Applied Investment Management Student Equity Presentations

Click here to access the student write-ups!

Student	Company	Ticker	Fund/Sector
Ben Schmidt	Equinor ASA ADR	EQNR	International Energy
Gino Piscopo	BJ’s Wholesale Club	BJ	Intl Healthcare
Edward Eisenhauer	NXP Semiconductors NV	NXPI	International Technology
Connor Jones	SolarEdge Technologies	SEDG	International Energy

6:30 p.m. CIRCLES Registration and Networking

7:00 p.m. Panel Discussions

8:00 p.m. Networking – Ventana Ballroom

Register online for Marquette CIRCLES - New York.

Pre-registration is strongly encouraged to facilitate quicker entry into the event.

$40 per person; $30 per person for Young Alumni (2004-19 undergraduates).
Includes attendee directory, beer/wine/soda and hors d'oeuvres.