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.
