Almost Family: Well Positioned for Demographic Growth

Almost Family (NDQ:AFAM) – Sep. 14, 2009 $28.38

52-week range: $14.91 (Mar. 9, 2009) - $53.85 (Nov. 10, 2008)

Almost Family is a provider of home health services. Service locations are in Florida, Kentucky, Connecticut, New Jersey, Ohio, Massachusetts, Alabama, Missouri, Illinois, Pennsylvania and Indiana. They operate in two segments: Visiting Nurse (VN) and Personal Care (PC). The company is compensated by Medicare, Medicaid, other third party payers and private pay. Government entities provide about 92% of revenues. The Visiting Nurse segment provides a range of Medicare-certified services to patients in need of recuperative care, following a period of hospitalization or care from an inpatient facility. The company’s Personal Care segment provides services in patients' homes on an as-needed, hourly, or live-in basis.

Home health care has been a great growth area as the aging of America continues. Earnings have risen from a split-adjusted $0.27 /share in 2003 to $2.58 /share in the trailing twelve months ended June 30^th. Last October AFAM was ranked 24^th in Forbes magazine’s listing of “The Best Small Companies in America” up from its #77 ranking in 2007. Almost Family was added to the S&P SmallCap 600 on February 20, 2009.

Here are the split-adjusted per share numbers since 2003 as reported by Value Line:

Year	Sales	C/F	EPS	B/V	Avg. P/E
2003	18.91	0.85	0.27	2.67	13.3x
2004	18.73	0.87	0.31	2.62	14.1x
2005	15.76	0.81	0.52	4.20	13.8x
2006	17.96	1.03	0.80	5.43	14.1x
2007	23.89	1.56	1.40	6.30	14.1x
2008	26.00	2.17	2.18	11.59	14.1x

Growth has come organically and through acquisitions of other similar healthcare companies. AFAM recently authorized issuance of 1.6 million new shares in a secondary offering (through J. P. Morgan Chase) to fund future capital spending and acquisitions.

The balance sheet is healthy with total debt at just 22% of capital and with almost nothing coming due within five years.

Earnings per share were sharply in this year’s first half and Zacks now sees full year 2008 earnings of $2.84 versus 2007’s $2.18. That puts Almost Family’s multiple at < 10.2x current year estimates. That’s the lowest P/E on these shares in more than a decade.

A rebound to a (still lower than typical) twelve times projections would see these shares at $33.60 by early next year. Is that out of line to expect? Hardly. AFAM shares peaked at $53.85 in November last year after their excellent third quarter report and were as high as $47.90 since the start of 2009. With record sales and earnings on tap that 433.60 target looks very conservative.

Here’s a nice buy/write combination that offers very good returns out to February 2010 with a break-even well below today’s price.

	Cash Outlay	Cash Inflow
Buy 1000 AFAM @ $28.38 /share	$28,380
Sell 10 Feb. $30 Calls @ $2.95 /share		$2,950
Sell 10 Feb. $30 Puts @ $4.70 /share		$4,700
Net Cash Out-of-Pocket	$20,730

If AFAM shares rise to at least $30 (+ 5.7%) by Feb. 19, 2010:

• The $30 calls will be exercised.
• You will sell your shares for $30,000.
• The $30 puts will expire worthless.
• You will have no further option obligations.
• You will hold no shares and $30,000 in cash.

That’s a best-case scenario net profit of $9,270/$20,730 = 44.7% achieved over only 5.25 months on shares that only needed to go up by 5.7% or better.

What’s the risk?

If AFAM shares finish below $30 on Feb. 19, 2010:

• The $30 calls will expire worthless.
• The $30 puts will be exercised.
• You will be forced to buy an additional 1000 AFAM.
• You will need to lay out another $30,000 in cash.
• You will have no further option obligations.
• You will end up with 2000 AFAM shares.

What’s the break-even on the whole trade?

On the original 1000 shares it’s their $28.38 purchase price less the $2.95 /share call premium = $25.43 /share.

On the ‘put’ shares it’s the $30 strike price less the $4.70 /share put premium = $25.30 /share.

Your overall break-even would be $25.37 /share.

Almost Family could fall by as much as $3.00 /share (-10.6%) without causing a loss on this trade.

Disclosure: Author is long AFAM shares and short AFAM options.

Comments

[Paul Price:]

Almost Family Inc. By: Tracey Ryniec - ZACKS
October 19, 2009

Almost Family, Inc. (AFAM - Snapshot Report) continues to quietly beat estimates and grow revenues. Third quarter estimates have risen in the last 30 days.

Almost Family provides home health nursing, rehabilitation and personal care services. It has surprised on estimates 7 quarters in a row and has beat on average of 15.42% in the last four.

On Aug 5, the company reported second quarter results which saw revenues rise 54% to $74.9 million from $48.7 million in the year ago period. The company surprised on the Zacks Consensus Estimate by 8.96% as earnings per share were 73 cents compared to the estimate of 67 cents. Almost Family reported 50 cents in the year ago period.

The Visiting Nursing segment saw 65% growth compared to the second quarter of 2008, with 29% of that coming from organic growth and the rest from acquisitions. The Personal Care segment increased 11%.

Will the company's earnings surprise streak continue in the third quarter? Almost Family is scheduled to report earnings on Nov 4. The Zacks Consensus Estimate is up 1 cent to 70 cents in the last 30 days. Analysts expect 2009 earnings growth of 30.81%.

Value Fundamentals

Almost Family is a Zacks #2 Rank (buy) stock. When I last reviewed the company in April 2009, it was trading at only 6.6x forward earnings. It is more expensive now, at 11.2x forward earnings, but still well within the value parameters.

The company has a low PEG ratio of 0.56. It also has a stellar 1-year return on equity (ROE) of 22.11%.

Oct 19 02:38 PM

[Paul Price:]

AFAM was mentioned very favorably at today's Value Investors' Conference in NYC.

Oct 19 06:03 PM