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Value Stock Pick Of The Week

|Includes:Addus HomeCare Corporation (ADUS), AET, AMED, ANTM, GTIV, HCA, UNH

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January 07, 2013 - Value Stock Pick of the Week Addus HomeCare Corporation by Zacks Investment Research

Addus HomeCare Corporation (NASDAQ:ADUS) delivered an 11.8% earnings surprise in the third quarter, marking its third beat in the past four quarters. Earnings estimates for this provider of residence-based medical and social services for the elderly have been on the rise since the report, helping it become a Zacks #1 Rank (Strong Buy) on January 3, 2013.

With an impressive valuation, including a price-to-book (P/B) multiple of just 0.9 and a price-to-sales (P/S) ratio as low as 0.3, this stock offers a promising proposition for value investors.

Good Third Quarter

On November 1, Addus HomeCare reported third-quarter adjusted earnings per share of 19 cents, beating both the Zacks Consensus Estimate and the year-ago earnings by 11.8%. Net income (prior to severance expense of $0.3 million) was $2.0 million, compared with $1.8 million last year (before adjustment for $16.0 million for intangible assets and goodwill impairment charge).

Company-wide net service revenues moved up 2.3% year over year to $71.0 million, beating the Zacks Consensus Estimate by about 1%. Revenues from the Home & Community segment were up 6.1% to $59.6 million, while revenues for the Home Health segment were down 13.6% to $11.4 million.

Operating income for the Home & Community segment (excluding head office expenses but including amortization and depreciation charges) stood at 12.6% of sales in the reported quarter, versus 12.1% in the year-ago quarter. The enhancement in margin came on account of cost control, reduced bad debt and other factors. Adjusted operating margin for the Home Health segment was 1.8%, compared with 1.4% a year ago.

Earnings Estimates Inch Up

The Zacks Consensus Estimate for 2012 increased 1.8% in the last three months to 58 cents. For 2013, the Zacks Consensus Estimate moved up 1.5% over the same timeframe to 69 cents, reflecting a year-over-year improvement of 19.0%.

Attractive Valuation

Though shares have approximately doubled over the past year, they remain a good buy. In addition to low P/B and P/S multiples, the stock is currently trading at a forward P/E multiple of 10.6. Going by the usual indicators of a P/E multiple below 15.0, a P/B ratio under 3.0 and a P/S ratio lower than 1.0 for a value stock; Addus appears to be undervalued.

The PEG ratio for the stock is 0.71, based on a 3- to 5- year earnings per share growth rate of 15%. This metric is at a 29% discount to the generally accepted yardstick of 1.0 for a fairly valued stock.

Addus HomeCare Corporation is a provider of health care services in the residential setting. Addus caters to the needs of older citizens and those who may be dually eligible. By providing a range of home-based care, the company's services permit people to stay at home longer. Addus has a market capitalization of about $79.3 million.

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Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ADUS over the next 72 hours.

Stocks: ADUS, AMED, GTIV, UNH, HCA, ANTM, AET