As someone who has covered the home health care sector for just over a short while, I always find it necessary to determine what needs to occur in order for a company to meet and/or exceed analysts' expectations. With that said, I wanted to take a closer look and share my thoughts on what needs to happen in order for Addus HomeCare Corp. (NASDAQ:ADUS) to deliver a fairly solid quarter when the company announces its results on July 31.
Headquartered in Palatime, Illinois, Addus HomeCare Corporation provides home and community-based services to older adults and younger disabled persons in the United States. It offers personal care and assistance with activities of daily living, and adult day care.
The company serves individuals with special needs who are at risk of hospitalization or institutionalization, such as the elderly, chronically ill, and disabled. Its home and community-based services include assistance with bathing, grooming, dressing, personal hygiene and medication reminders, and other activities of daily living. The company's adult day centers offer skilled and support services, and designated medical services for adults. Its services comprise social activities; transportation; and provision of meals and snacks, as well as personal care and therapeutic activities, such as exercise and cognitive interaction.
Recent Trend Behavior
On Monday, shares of ADUS, which currently possess a market cap of $247.69 million, a forward P/E ratio of 17.64, and a PEG ratio of 1.55, settled at a price of $22.62/share. Based on a closing price of $22.62/share, shares of ADUS are trading 1.57% above their 20-day simple moving average, 0.47% above their 50-day simple moving average, and 7.25% above their 200-day simple moving average.
Although these numbers indicate a short-term uptrend and a long-term downtrend for the stock, which generally translates into a buying mode for most near-term traders and a selling mode for many long-term investors, I strongly believe the company's trend behavior will reverse course after it announces its Q2 results on July 31.
Upcoming Earnings Outlook
When it comes to the company's upcoming Q2 earnings, there are a number of things potential investors should consider. For instance, analysts currently calling for ADUS to earn $0.25/share in terms of EPS (which is $0.04/share higher than what the company had reported during Q1 2014, and $0.02/share higher than what the company had reported during the year-ago period) and $74.56 million in terms of revenue when its latest earnings are released on July 31.
In order to meet and/or exceed its quarterly EPS estimates, I'd like to see a 2%-to-4% increase in the company's Q2 operating income from continuing operations (as compared to Q1's operating income from continuing operations of $3.77 million), a 2%-to-3% increase in the company's Q2 gross profit (as compared to Q1's gross profit of $18.6 million) and lastly, a 2%-to-3% increase in the company's net income (as compared to Q1's net income of $2.4 million).
Acquisition of Cura Partners
One the most important factors to consider when a company makes an acquisition, is how much of an impact that transaction will have on the company's top line. In the case of Addus HomeCare, its recent acquisition of Tennessee-based Cura Partners is expected to add anywhere from $12-$13 million in aggregate projected annual revenues. Not only will the transaction add the $12-$13 million in aggregate projected annual revenues but it will also strengthen Addus' presence in Tennessee, which is a leader among the states that are transitioning its long-term care services to managed care.
For those of you who may be considering a long-term position in Addus HomeCare, I'd actually recommend keeping a closer eye on the company's acquisition-related activity as the enhancement of its presence in states such a Tennessee could mean significant increases in its long-term revenue growth.
In terms of the company's upcoming quarter, steady increases of at least 2% in terms of the company's gross profit as well as a solid increase of at least 2% in terms of its net income could help ADUS meet or even surpass analysts' expectations when earnings are announced on July 31.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.