LHC Group Earnings Preview

| About: LHC Group (LHCG)

LHC Group, Inc. (NASDAQ:LHCG) is set to report earnings before the market opens on Wednesday, March 11th. LHC Group, Inc., through its subsidiaries, provides post-acute healthcare services primarily to Medicare beneficiaries in rural markets in the United States. The company offers various home-based services primarily through home nursing agencies and hospices; and facility-based services principally through long-term acute care hospitals and outpatient rehabilitation clinics.

LHGC is expected to earn 46 cents for its 4th quarter. We expect the home nursing company to announce earnings that slightly beat investors’ and analysts’ expectations as LHCG beat the number 11 of the last 13 quarters.

This is yet another Obama stock. Jefferies and Company recently noted that home-nursing stocks should benefit from the spendulus and post strong 4th quarter results. In addition to the stimulus, the expansion of Medicare will be a big part of healthcare reform. Perhaps that’s why analysts are projecting 26% growth next year.

Twenty-six percent growth looks great in the face of a forward P/E of only 8.67. LHCG exchanges hands with a PEG ratio of .71 and at only .89 times sales; both numbers would be fantastic under normal market conditions. Even Warren Buffett would be happy with LHC Group’s return on equity of 15.33%. Fundamentally the numbers look good, the company is well positioned to take advantage of a huge expansion of government spending, but the market sucks.

The way we would trade the LHCG earnings announcement is again with a covered call strategy. LHCG closed Thursday at $17.25 and the March $17.5 call option closed at bid of $1.50. For every 1000 shares of LHCG, investors who sell or write the March calls should bring in at least $1,500 for a 8.7% premium. If the stock holds still or moves up slightly between now and March 20th, that would be a hell of a return in this market; if not, we would suggest putting your stops at the breakeven point of $15.75.

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Tagged: , Home Health Care, Earnings
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