As the healthcare industry braces for significant changes from the Affordable Care Act, few healthcare providers look particularly enticing. Additionally, the names that would benefit have been rallying along with the rest of the market, which means you will not be getting any discounts. In the sphere of home healthcare, the big names like Amedisys (NASDAQ: AMED) and Gentiva Health Services (NASDAQ: GTIV) look poised to get hit hard by the new legislation. Under the new laws, these providers will see less reimbursement, which translates to lower revenues. However, Almost Family Inc. (NASDAQ: AFAM) is expected to better handle the changes and emerge more quickly to profitability. The reasoning is that Almost Family is very efficient and focuses on one niche; the elderly. The company operates in two segments: visiting nurse services and personal care. The elderly will continue to seek at home care no matter what state the new legislation will take. Additionally, the company is very well run and managed.
Fundamentally, the stock has a market cap of $194.41 million and currently has a price-to-earnings ratio of 10.23. Furthermore, it has a forward price to earnings of 12.82. Almost Family is currently on sale with a PEG of 0.85, price to sales of 0.55 and price to book of 0.95. However, the company has excellent cash flow levels, as we can see from its price to free cash flow ratio of 10.65. It does not stop there. AFAM has essentially no debt and has 4.56 cash per share. This nice cash load and no debt obligation will help the company battle any disappointing earnings declines. As you can imagine, earnings will face some downside pressure over the next year with earnings expected to fall 32 percent this year and 3 percent next year. However, over the next five years, earnings are estimated to rise 12 percent.
Technically speaking, the stock is in a tight range right now between $21 and $20.50. I would advise waiting for a significant pullback to occur before entering. Chances are that the stock is more likely to break down lower due to the business environment ahead. Any break outs will likely prove to be false or short lived. The stock could even retouch its November lows of around $16.22.
The bottom line here is this is a long-term investment that should not be jumped into right now. I would say this is a great pick to put on your watch list and wait for a significant pullback later this year or next year. The changing healthcare environment will likely put pressure on shares but the long-term picture looks very bright and very profitable. Its larger competitors will struggle with lower revenues as they have other areas than home care to worry about. Almost Family focuses only on home care for elders, which is a pretty conservative business model over the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.