Amedisys' Blowout Quarter: More to Come

Amedisys Inc. (AMED) released its numbers for the second quarter last week and the results were certainly impressive. The company realized EPS of $1.27 for the quarter which was up 67.1% over the same quarter last year.

I must point out that even though earnings are 67% higher than they were at this time last year, the actual stock price is roughly 33% lower than August of 2008 when the stock actually hit its climax.

Management has three main initiatives which appear to be driving their success

• Superior Clinical Services
• Aggressive Growth
• Operational Efficiency

All three are important in this dynamic period as it relates to health care. In order to receive favorable treatment from Medicare, the company must provide excellent service. The focus on acute in-patient care allows Amedisys to differentiate themselves and provide a level of service which is needed and clearly beneficial to both their patients and to Medicare as an institution.

The talented management team has become notorius for making strategic acquisitions during the difficult financial period. With a disciplined approach to managing debt and balance sheet risk, and a strong eye for accretive purchases, the geographic footprint has expanded while at the same time the financial integrity of the company has remained sound.

Finally, a commitment to cutting costs has led to strong profitability. Management has been able to take many of its newly acquired offices and cut redundant expenses in order to create better efficiency. The net result has been strong margins while at the same time providing quality care at a reasonable price.

Perhaps the most exciting part of Friday’s announcement is the increased guidance for 2009. Management now expects earnings of $4.75 to $4.90 on revenue of $1.475 to $1.50 billion. That’s well above current expectations and even at the low end it represents a 44% increase in earnings. And yet the stock is currently trading at just under 10 times this year’s earnings. So despite a 10% increase in the stock Friday, it appears there is ample room for investors to generate a healthy return with relatively little risk.

The major unknown for many stocks in the health care sector is the legislation currently in process in Washington which could significantly change the way Medicare reimbursements are handled. But Amedisys actually has put itself in a position of strength by offering quality care at a reduced price compared to many of the more traditional alternatives to home health care.

We continue to believe that the effective use of home health will provide high quality, outcome driven care to the chronically ill Medicare population for the lowest cost. ~William F Borne, CEO

Low cost and high quality are certainly positives when it comes to determining how Medicare will reimburse for services.

Statistically, it appears Amedisys is above the nation when it comes to specific outcomes for patients. The chart below lists an assortment of goals such as “improvement in pain” or “improvement of surgical wounds” and shows that for the majority of categories, Amedisys patients are seeing more improvement than national norms:

Placing a modest multiple of 12 on the low end of the company’s guidance would yield a stock price of $57 - significantly higher even after Friday’s rally. I think a more realistic multiple of 15 on next year’s earnings (conservatively valued at $5.25) could be possible in the next few quarters - potentially pushing the stock up above $75. This company has built an impressive platform and management is talented at growing while still keeping close relationships with health care regulators. Look for Amedisys to be an industry leader for years to come.

Disclosure: Author has a long position in the ZachStocks Growth Model

Comments

[Pillpoppinp...:]

Take a look at LHCG as well...relative to AMED, it has a lower EBITDA multiple, a higher pretax margin, a better balance sheet and a higher return on invested capital.

Aug 02 09:32 AM