Almost Family: A Growing Company That Will Benefit from Aging Baby Boomers

Last week I bought a starter position in Almost Family (AFAM) and plan to add to my holding on price dips. Almost Family provides home health care services in the United States. It operates in two divisions, Visiting Nurse [VN] and Personal Care [PC].

The VN division provides Medicare-certified home health nursing services to patients in need of recuperative care. The PC segment provides in-home patient care on an as-needed, hourly, or live-in basis. As of December 31, 2007, AFAM operated 33 Medicare-certified home health agencies with 51 locations and 22 personal care locations.

Here are some things I like about AFAM:

1. AFAM was recently added to the Russell 2000. It had a runup going into June 30, then pulled back. It now seems to be resuming its relative strength in a terrible overall market environment and should be a good stock to hold in a recessionary environment.
2. The company reported great first quarter earnings:
   - Service revenues up 23%, Visiting Nurse revenues up 30%.
   - 17% organic revenue growth plus additional gains from rolling up acquisitions.
   - Net income from continuing operations up 41%.
   - Reasonable PE ratio (16 times) for a company growing so fast.
3. Little analyst coverage (only two analysts).
4. Return on equity= 28%.
5. Growing analyst estimates for 2009. In the last 90 days, the forecasted analyst 2009 earnings estimate was raised from 1.31 to 1.67.
6. Low institutional ownership (only 17%). Lots of potential upside as more institutional investors purchase AFAM which is now on their radar screen as a member of the Russell 2000.
7. Good Sponsorship: Owned by Fidelity Lo Price (Tillinghast) and Oberweis Micro Cap funds.
8. Will benefit from aging of the baby boomers.

Full Disclosure: I am long AFAM.

Comments

[Pat Bateman:]

Branded outsourcing for elder care, how modern.

This is in my portfolio as a long term growth pick.

2008 Jul 13 03:46 PM

[Bonhomme:]

This is farily solid, if not biased, info. Many currently view home healthcare as somewhat recession-proof. However, what happens when Congress has to snip and cut pieces out of Medicare. We saw a strong group of lobbyists succeed last week on behalf of doctors. Does the home healthcare industry have similar muscle?

2008 Jul 14 06:33 PM

[PK:]

Thanks for the article, I think this is good info. Some food for thought on the impending Medicare cuts. When Medicare enters fiscal crisis mode, it will assess the relative cost and ROI of paying for services in various post-acute care settings (e.g., SNF, LTCH, HHA, IRF). There is a good chance home health will emerge as the most cost effective alternative for Medicare's baby boom masses. In other words, beneficiaries could very well be swung towards home health because of these 'snips and cuts.' That said, AFAM would be wise to continue diversifying their core Medicare business with this PC service. I'd keep an eye on the revenue split between Medicare-driven VN and non-Medicare PC as the company grows.

2008 Jul 15 03:49 PM

[Bonhomme:]

Logically, that assessment gets an A. Our politicians aren't logical. If you look at the Adult Day Care experiment the results are compelling: A fraction of the traditional PC cost with physical results that are verifiably better for the patient. Irrespective of this compelling evidence, the government has done nothing to move towards embracing this option--and it's been years. While I agree that AFAM and AMED and others have potentially mercurial financial futures, things could change quick. Medicare is an outdated prescription for a new world. When changes have to be made, I wouldn't want to bet on the "solutions" coming out of Washington--or any/all of the states with respect to Medicaid, for that matter. Our politicians listen to special interests first, with logic (ROI and relative costs) only entering the equation later, if at all. The future looks bright for home health, but I'd discount earnings potential quite significantly due to such future unknown bumps in the road.

2008 Jul 17 01:34 PM