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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.

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Quote of the Month:

“As Congress shuts down the Federal Government, millions of Federal workers will not get paid, however one group will get paid.  You guessed it….our Senators and Congressmen and women….the same group that voted themselves exempt from Obamacare”    Harry Newton

The Home Health Index Hits a New Two Year High!

In June, after CMS issued their onerous proposal, our Stoneridge Partners Home Health Index (HH Index) crashed.  It charged back in July, up 6.5%, then in August it was up 6%, and now in September it’s up another 4%.  Over the last three months its up over 16%, while the general market, as measured by the S&P 500, is up only 4.6%.  All this while facing the new CMS proposal for reduced reimbursement.

All stocks in the HH Index were up for both the month, and for the last three months.

To make matters more confusing,  Addus HealthCare is up close to 50% over this same three month period.

What is going on?

Last month the big news was the announcement that private equity giant KK&R had taken a stake of over 8% in Amedisys.   This month the big news was Gentiva’s announcement of their proposal to buy home care industry giant Harden Healthcare, with annual revenues of $476 million.  More on this below.

For the last few months we have included Addus in our monthly tracking; however, because they have very little Medicare revenue, they are not included in our index.  Addus is however a home care company to watch, and, for the past year, they have had outstanding stock market performance.  Here are the results:

As you can see, all stocks were up nicely for the month, and, with the exception of Almost Family, all stocks are also up nicely for both YTD and from one year ago.

Regarding stock market performance over the past year, clearly the big winner continues to be Addus HealthCare.  Talk about a stock on a tear….up another 36% in September.  One year ago their stock sold for $5.35, today it sits at 28.97, up over 400%.  Did anyone see this coming?

The high for our HH Index was set in September, 2008 at 41.75.  It now sits at 18.04.

 GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through September, 2013.

(Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride)

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index going back to November, 2002.

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through September, 2013.

 GENTIVA ANNOUNCES A PROPOSED ACQUISITION OF HARDEN HEALTHCARE

In a surprise move, it looks like Gentiva is going to buy the home health and hospice segment of Harden Healthcare.  Harden, with revenues of $476 million, is being purchased for $408.8 million (about 86% of revenue).  The logic of this acquisition appears to be to reduce Gentiva’s dependency on Medicare home care.  About 40% of Harden’s revenue comes from Hospice with most of the remaining revenue coming from community care programs such as Medicaid waiver programs.

Prior to the acquisition Medicare accounted for approx. 86% of revenue, and, with the Harden acquisition, this will drop to 72%.

 ProForma by Bridgewater Invesments

To read the entire analysis by Bridgewater Investment you can go to the following link:

Gentiva-Harden

On the Good News Front!   It looks like the Partnership for Quality Home Healthcare, a coalition of home health providers, is making some progress in Washington…..142 members of the US House of Representatives have expressed their deep concern regarding the proposed rate cuts in a letter to Marilyn Tavenner, the Administrator of CMS.  To read the entire article go to the following link:

Partnership

Selling Price as a Percent of Revenue:  For many years the selling price of good Medicare agencies was generalized at about 100% of revenue.  Clearly that is no longer the case.  These public companies (with the exception of Addus) are now selling for considerably less.  The following percentages are based on Enterprise Value (EV), with data provided by Capital IQ.

Multiples of EBITDA which are based on Enterprise Value (EV).  Data provided by Capital IQ.

MERGER & ACQUISITION ACTIVITY – Clearly the big news was the Gentiva-Harden transaction discussed earlier in this column, however it’s been a very busy couple of months for us.  Over the last seven weeks we have handled the sale of seven home health agencies or hospices.  Our most recent:

Synergy Comfort Services, a Massachusetts based private duty agency sold to a diversified health care company.  Kevin Taggart, one of our partners, provided sell-side advisory services.

You can find all of these “sold” transactions on our blog at www.stoneridgepartners.com/blog

Gentiva also announced a joint venture with Wake Forest Baptist Medical Center based in Winston-Salem, NC.

NAHC’S ANNUAL CONFERENCE & EXPO will be in Washington DC October 31 – November 3rd.

Panel Discussion:  At the NAHC conference, on Friday at 2:30, we will hosting a “Panel Discussion”  on  mergers & acquisitions, and how the current home care environment is affecting acquisition strategies and valuations.  On our panel will be:

• Shelly Berman, Principal of Simione Consulting, a leading home care and hospice consulting firm.
• Peter Sosnow, Director of Development at Senior Bridge, now owned by Humana.
• Brian Bruenderman, Director of Development at Almost Family, a public home care company.
• Cory Mertz, a partner here at Stoneridge Partners.
• Don Cummins (me), founding partner at Stoneridge Partners, will be moderating the discussion.

We would really like to put your tough questions to this panel of experts.  There is a contact tab at the top of this page where you can send us your questions, or you can send them to me directly: don@stoneridgepartners.com.  Please let us hear from you.

The Battle Begins….is the title of another presentation we will be giving at NAHC.  On Friday, November 1 at 4:15 in Washington we will be giving our ever-popular presentation titled “Negotiating the Sale of a Home Care Agency or Hospice…The Battle Begins”, where we humorously depict a transaction from initial valuation issues through negotiations, offers, due diligence and the final closing. Please join us, its a lot of fun!

Do you know of any acquisitions that have taken place?  We would be interested in your comments.  At the top of this column is a “Contact Tab” with a section for comments.  These can be sent anonymously.  The return email address can be left blank.  We are interested in what you have to say, or acquisitions that you know about.

MORE:  And for additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly: stoneridgepartners.com/blog

From Don Cummins, Publisher of “The Home Health Index”  don@stoneridgepartners.com

Previous editions of this monthly newsletter can be searched for at the bottom of this page.

Cartoon of the Month, from The New Yorker

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.

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Quote of the Month:

“The Medicare proposed rule could result in nearly $100 billion in total cuts to the home health benefit.”                                                                                                                               

From an analysis released through the combined efforts of NAHC, VNA of America and The Partnership for Quality Home Health Care.

The Stoneridge Partners Home Health Index Hits a Two Year High!

In June, after CMS issued their onerous proposal,  our Stoneridge Partners Home Health Index (HH Index) crashed.  It charged back in July, up 8.5% and now in August it’s up another 6%.   Not since July of 2011 have we been at this level.  Meanwhile the overall market turned in a poor performance, with the S&P 500 down over 3%, ending  the month at about where it was last May (sell in may and go away).

But before we get too carried away with this seemingly good news it must be pointed out that this increase was primarily the result of one stock’s  big jump.  On August 9th it was announced that private equity giant KK&R had taken a stake of over 8% in Amedisys.   That day the stock jumped from 14.62 to 17.90….over 22% with 3.5 million shares traded.  In terms of our Home Health Index, that news was huge!  Consider that at the close of June, Amedisys stock hit a multi-year low of under $10.  At that time we ruminated that it might be a good buy.

For the last few months we have been including Addus in our monthly tracking; however, because they have very little Medicare revenue, they are not included in our index.  Addus is however a home care company to watch, and, for the past year, they have had outstanding stock market performance.  Here are the monthly results:

As you can see, most of this month’s increase came from Amedisys, although Gentiva too had a good month.  Both Almost Family and LHC Group were down.   Almost Family is the only stock that is down both YTD and from one year ago.  All others are up.

Regarding stock market performance over the past year, clearly the big news continues to be Addus HealthCare.  Talk about a stock on a tear….up over 300% from one year ago.

The high for our HH Index was set in September, 2008 at 41.75, and then, within five months it dropped to $21.  It now sits at $17.32.  As a comparison, since 2008, the S&P 500 is up about 75%.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through August, 2013.

(Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride)

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index going back to November, 2002.

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through August, 2013.

By the Numbers:

Now that all of the earnings reports have been released for the second quarter, we thought it might be interesting to look at some totals.  Below is the total revenue, gross profit and operating income for all of the four companies that are included in our home health index:  Almost Family, Amedisys, Gentiva and LHC Group.

Summary….Over the last two years:

1.  Revenue for the quarter dropped about $93 million or 8.6%.

2.  Gross profit dollars dropped about $71 million or 13.8%.

3.  Gross profit percentage dropped from 47.8% to 45.1% down 5.6%

4.  As a result, operating income dropped dramatically, down $36 million, over 40%.

5.  Stock prices as measured by our Home Health Index dropped 34%.

These sad results appear to be tied directly to the decrease in Medicare reimbursement….and, with the new proposal from CMS, the future does not look better.

On the bright side however, over the last year, even with revenue and operating income down substantially, the stock prices, as measured by our HH Index, are up….over 11%.  What does that tell us?

Certainly another bright spot appears to be the investment of KK&R in Amedisys.  As a giant private equity firm, they certainly do not have a reputation for making mistakes.  It makes one wonder what they know?  Further, how active are they going to be, and if they do become active, will this usher in a change in management?

Selling Price as a Percent of Revenue:  For many years the selling price of good Medicare agencies was generalized at about 100% of revenue.  Clearly that is no longer the case.  These public companies are now selling for considerably less.  The following percentages are based on Enterprise Value (EV), with data provided by Capital IQ.

Multiples of EBITDA which are based on Enterprise Value (EV).  Data provided by Capital IQ.

MERGER & ACQUISITION ACTIVITY –

• Kindred Healthcare signed a definitive agreement to acquire Western Reserve Senior Care, a Cleveland, Ohio physician practice specializing in home care.  Financial terms were not disclosed.

• We just finished the sale of a $16 million Medicare agency in the southeast.  Cory Mertz, one of our partners, provided advisory services to the seller.   At this time the name of the company is confidential.

Do you know of any acquisitions that have taken place?  We would be interested in your comments.  At the end of this column we have added a section for comments.  These can be sent anonymously.  The return email address can be left blank.  We are interested in what you have to say, or acquisitions that you know about.

Presentation:  On September 10th in Columbus, Ohio we will be giving our presentation titled “Selling a Home Health Agency….how to successfully value, structure and execute a merger or sale of a home health agency”.  Go to our home page for further information.

MORE:  And for additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly: stoneridgepartners.com/blog

Cartoon of the Month, from The New Yorker

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.

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Quote of the Month:

“Get big or get out”

For years this has been a catchphrase of the Great Plains farmer, and most small farmers have gotten out.  Philip Caputo, The Longest Road

The Stoneridge Partners Home Health Index Hits 16 Month High!

What a way to end the month.  Our headline last month was that the Stoneridge Partners Home Health Index (HH Index) hit a one year low.  Talk about surprising news.  In July our index hit 16.33, a 16 month high, going back to March of 2012 (I had to use my fingers to count the months).  Sure, the whole market was up with the S&P 500 gaining 5%, but our Index was up 8.5%

What a turn around, and a surprise to us, given all of the bad news out there.   More on this turn of events later in this column, but for now here are the results:

Here are the results for our HH  Index:

Last month all of the stocks in our index were down.  This month all were up with LHC Group leading, up over 17%.

However when looking back one year it is hard to generalize.  Gentiva is up over 58% from one year ago, while Almost Family is down close to 13%.

The high for our HH Index was set in September, 2008 at 41.75, and then, within five months it dropped to $21.  It now sits at about $16.33.   As a comparison, since 2008, the S&P 500 is up about 75%.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through July, 2013.

(Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride)

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index going back to November, 2002.

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through July, 2013.

Regarding stock market performance over the past year, clearly the big news continues to be Addus HealthCare.  Because they have very little Medicare revenue, they are not included in our HH Index  (NASDAQ:ADUS), but talk about a stock on a tear….up over 300% from one year ago.

Under their trademarked program called Addus Dual Advantage, they are focusing on the  dual eligible population, which they state is the top 5% in terms of resource and expenditures.

At the close of July Amedisys, Gentiva and Addus released their 2nd quarter numbers.  Here is a thumbnail sketch compared to the 2nd quarter of 2012 and the 1st quarter of 2013.  We will follow up next month with the results of Almost Family and LHC Group.  As a note this is the first quarter that has included the 2% Medicare sequestration cut.

Results:  Both Amedisys and Gentiva show a substantial drop in profit from one year ago.  What is interesting to note is that both stocks are up from one year ago.

What is further surprising is that, with all of the bad news, the sequestration cuts and the proposal for 3.5% rate cuts each year for the next four years….all stocks were up for the month.  It is enough to make one wonder what the market telling us….that things are not as bad as we think, or that these companies will be left standing while many of their smaller competitors go out of business.

We go back to our quote of the month…”Get big or get out”.  This phrase has appled to many businesses, with the mom & pop drug store an example.  Is this the direction we will be going in home care?

Selling Price as a Percent of Revenue:  For many years the selling price of good Medicare agencies was generalized at about 100% of revenue.  Clearly that is no longer the case.  These public companies are now selling for considerably less.  The following percentages are based on Enterprise Value (EV), with data provided by Capital IQ.

Multiples of EBITDA which are based on Enterprise Value (EV).  Data provided by Capital IQ.

MERGER & ACQUISITION ACTIVITY – In all of the following transactions we were the exclusive merger and acquisition firm.

• Almost Family announced their acquisition of the assets of the Medicare-certified home health agencies owned by Indiana Home Care Network, or IHCN, for $12.5M.  IHCN dba  Innovative Home Health, a provider of home health services that operates six home health locations, primarily in northern Indiana.  Our group at Stoneridge Partners provided brokerage/advisory services.

• Cole Home Health, a large Texas Medicare home care company sold to a large regional home care provider.  Our group at Stoneridge Partners provided brokerage/advisory services.

• Virginia based All Heart Home Health Agency & Hospice, a Medicare provider, sold to a large national health care provider. Our group at Stoneridge Partners provided brokerage/advisory services.

Do you know of any acquisitions that have taken place?  We would be interested in your comments. At the end of this column we have added a section for comments.  These can be sent anonymously.  The return email address can be left blank.  We are interested in what you have to say, or acquisitions that you know about.

Presentation:  On September 10th in Columbus, Ohio we will be giving our presentation titled “Selling a Home Health Agency….how to successfully value, structure and execute a merger or sale  of a home health agency”.  Go to our home page for further information.

MORE:  And for additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly:stoneridgepartners.com/blog

Final Note:  I am writing this from Sun Valley, Idaho where I am escaping Florida’s heat, humidity and rain.  If any of our readers happens to be here give me a call…..I’ll buy you lunch.  Don Cummins  239-980-7456

Cartoon of the Month, from The New Yorker

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.

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Quote of the Month:

“Agencies across the country are faced with looming budget cuts, the possibility of more cost shifting onto beneficiaries(co-pay), diminishing margins, and increasingly stringent – and often confusing new regulations.”  Bill Dombi, Executive Director, NAHC.

The Stoneridge Partners Home Health Index Hits a Seven Month Low!

What a way to end the month.  On June 27 CMS released their proposed Medicare home health payment rates for 2014 which set re-basing at the maximum reduction of 3.5% for each of the next four years.   Although this is just a proposal it sent a shock wave to the stocks in our Stoneridge Partners Home Health Index, causing the index to drop over 10% in just a few hours, something we have not seen in our ten years of tracking.

Until then our HH Index had been up, however we are now down about 7% for the month and 5% YTD.  On the good news front, our index is still up from a year ago.

And look at Addus, which continues its tear, up over 9% last month, and now up over 300% from a year ago. Really remarkable.

Here are the results for our HH  Index:

All of our stocks were down in June, with LHC Group leading.  However when looking back one year it becomes hard to generalize.  Gentiva is up over 40% from one year ago, while Almost Family and Amedisys are both down.

The high for our HH Index was set in September, 2008 at 41.75, and then, within five months it dropped to $21.  It now sits at about $15, a seven month low.   As a comparison, since 2008, the S&P 500 is up about 70%.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through June, 2013.

(Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride)

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index going back to November, 2002.

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through June, 2013.

Regarding stock market performance, clearly the big news continues to be Addus HealthCare.  Because they have very little Medicare revenue, they are not included in our HH Index  (NASDAQ:ADUS), but talk about a stock on a tear….even with the bad news from CMS they were up 10% last month, and over 300% from one year ago.

Under their trademarked program called Addus Dual Advantage, they are focusing on the  dual eligible population, which they state is the top 5% in terms of resource and expenditures.

Medicare Rate Cuts:  CMS estimates that the total cut in 2014 will amount to 1.5%….this in addition to the 2% sequestration cut already in place as of April 1st of this year.

As a result of this announcement,  private equity firm RW Baird downgraded the stocks of all of the companies in our HH Index as a group from “neutral to “underperform”,  and our index took a steep nosedive.

Selling Price as a Percent of Revenue:  For many years the selling price of good Medicare agencies was generalized at about 100% of revenue.  Clearly that is no longer the case.  These public companies are now selling for considerably less.  The following percentages are based on Enterprise Value (EV), with stock prices as of June 30, 2013.

Multiples of EBITDA which are based on Enterprise Value (EV) from their earning results through the 1st quarter 2013 with stock prices as of June 30, 2013.

MERGER & ACQUISITION ACTIVITY

• Just announced and effective July 3:  LCS^®, a national leader in senior lifestyle services and senior living community development and management, and CareSouth^®, a leading regional provider of home health services, announced a joint venture partnership in Health at Home™, an LCS Company.   CareSouth will manage the operations of the existing 17 Health at Home locations in 11 states, currently serving over 1,400 clients.

• Mercer Street Friends, Trenton, New Jersey, announced that they have signed an agreement to transfer the assets and services of Mercer Street Home Health, a Medicare agency, to Ocean Healthcare, a network of family-owned and operated healthcare centers headquartered in Lakewood, New Jersey.  This transaction is expected to be finalized within 6 to 8 weeks.  Cory Mertz, one of our Stoneridge partners, is providing sell-side advisory services.

• A subsidiary of Kindred has signed a definitive agreement to acquire the assets of All Heart Home Health Agency and Hospice, Inc. (“All Heart”).  All Heart is a Medicare home health and hospice provider that operates two locations in Norfolk, Virginia. All Heart currently generates annualized revenues of approximately $5.5 million. This transaction is subject to several regulatory approvals and other conditions to closing and is expected to close in the third quarter of 2013.   Rhonda Gronberg with Stoneridge Partners is providing advisory services.

• A subsidiary of Kindred has signed a definitive agreement to acquire the assets of Arrowhead Home Health, Inc. and Arrowhead Hospice Centers, Inc. (“Arrowhead”). Arrowhead is a home health and hospice provider that operates two locations in the greater Phoenix market. Arrowhead currently generates annualized revenues of approximately $2.2 million. This transaction is subject to several regulatory approvals and other conditions to closing and is expected to close in the third quarter of 2013.

• LHC Group Inc. (NASDAQ: LHCG) has completed the previously announced acquisition of AseraCare Home Health. The transaction represents LHC Group’s initial home health entry into the states of Minnesota, Wisconsin and Pennsylvania and expands LHC Group’s geographical footprint to 310 locations across 26 states.The acquisition includes four home health agencies located in Atlanta, Ga.; Bloomington, Minn.; Milwaukee, Wis.; and Pittsburgh, Pa.  Annual revenue is approximately $5 million.

Do you know of any acquisitions that have taken place?  We would be interested in your comments. At the end of this column we have added a section for comments.  These can be sent anonymously.  The return email address can be left blank.  We are interested in what you have to say, or acquisitions that you know about.

Webinar:

On Thursday, June 11 at 2 pm ET, we will be giving an informative and entertaining webinar on “The Process of Selling a Hospice”  To learn more go to the link on our home page.

Cartoon of the Month, from The New Yorker

MORE:  And for additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly:stoneridgepartners.com/blog 

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.

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Quote of the Month:

“The landscape is shifting.  States are shifting responsibility for care to health plans and managed care.  Focus on managing and coordinating care for the costly dual eligible population”.  Addus HealthCare, whose stock is up 350% from a year ago.

UPDATE:  The Stoneridge Partners Home Health Shows an Uptick!

For the month of May our Stoneridge Partners Home Health Index showed an increase of 4.4%, and the S&P 500 continued its increase….up 2.1%.

All of our stocks were up, however the increase was primarily on the back of Amedisys.  After hitting a low that goes back to 2003 of $10.04, the stock jumped 22.7% to 12.32.  If you will remember in last month’s column we ruminated as to whether or not it was, at that low point, a buy.

The high for our HH Index was set in September, 2008 at 41.75, and then, within five months it dropped to $21.  It now sits at $16.19, down 61%.  As a comparison, during this same time period the S&P 500 is up about 75%.

Out HH Index is now up 2.1% year-to-date (YTD) while the S&P 500 is up 14.3%.  Almost Family is the only stock that is down, both YTD and from one year ago, and Gentiva leads the parade, up 90% from one year ago.

Here are the results for our HH  Index….take a look at the remarkable results from Addus…more on this later.

 GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through May, 2013.

(Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride)

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index through May, 2013.

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through May, 2013.

Notice the nice upward trend of LHC Group and Gentiva.

 Addus:

Regarding stock market performance, clearly the big news is Addus HealthCare.  Because they have very little Medicare revenue, they are not included in our HH Index  (NASDAQ:ADUS), but talk about a stock on a tear….they are up over 50% last month, up 151% year-to-date and over 350% from one year ago.

Under their trademarked program called Addus Dual Advantage, they are focusing on the  dual eligible population, which they state is the top 5% in terms of resource and expenditures.

A few numbers from their latest Form 8-K:

• Dual represents 36% of total Medicare spending and 39% of total Medicaid spending.
• Twenty six States have indicated they will participate over the next three years.
• $300 billion in annual spending for dual elibible in 2007.
• Funding is administered by the State.
• Approximately nine million are “Duals”

Clearly the stock market likes their game plan.  To see the complete report go to the following link:      Addus Form 8-K

Addus Stock Price for the Past Two Years

What follows are the results for the HH Index companies for the first quarter

Gentiva was the only company that ended up with an increase in their operating income, due to their reduction in G&A expenses of close to $14 million for the quarter.

But the total of the four companies tells the story:  revenue, gross profit dollars & percentage, and operating income….all down.  With the 2% sequestration cut sticking around like Velcro, can we really expect much improvement in these numbers in the second quarter?

While 2% may appear to be a minor blip on the screen, unfortunately it results in a big hit to bottom line profits.  On a typical $5 million revenue agency with a 15% bottom line, if all expenses stay the same, it reduces that bottom line by $100,000 or 13.3%.  Attach a selling multiple of 5 to that and you have a potential decrease in selling price of $500,000.  Not exactly chump change.

(As a bit of a sequestration side note, I don’t believe that the  salaries or benefits of our congresspeople have been affected on iota.)

MERGER & ACQUISITION ACTIVITY

Again, not much in announced acquisitions from these public companies.

LHC Group announced that they have entered into an agreement to acquire the assets of AseraCare Home Health, which includes four locations and about $5 million in annual revenue.  The transaction is expected to close on or around June 28.  This leaves AseraCare with a substantial presence in hospice.

Kindred’s subsidiary has signed a definitive agreement to acquire QStaff Home Healthcare and Advanced Care Hospice (“QStaff”). Terms of the transaction were not disclosed. QStaff is a high-quality provider of home health and hospice services that operates one location in the Houston, Texas market and provides services in five counties.  They generate annualized revenues of approximately $2 million. The transaction is expected to close in the second quarter of 2013.

Kindred’s subsidiary also signed a definitive agreement to acquire Caring Hearts Home Health, with locations in Big Springs and Odessa, Texas.  They generate about $1.6 million in revenue.  This transaction is also expected to close in the second quarter of 2013.

Aurora Hospice, located in Houston, recently sold to a national homecare and hospice provider.   We provided sell-side advisory services.

Other than that we have not seen any other acquisitions announced.  We continued to expect M&A to return as a driver of growth as reimbursement visibility improves.

If you hear of any sales please let us know.  At the end of this column we have a form you can send to us that can be sent anonymously.

MULTIPLES OF EBITDA based on Enterprise Value (EV) from earning results through the 1st quarter 2013 with stock prices as of May 31, 2013.

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.

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Quote of the Month:

“Chemed and VITAS intend to defend this lawsuit vigorously.”

This in response to the False Claims Act complaint filed by the federal government alleging that the Company submitted or caused the submission of false claims to the Medicare program.

UPDATE:  The Stoneridge Partners Home Health Index Drops Again!

While the stock market in general continued its tear with the S&P 500 showing a very nice year-to-date increase of over 12% our Stoneridge Partners’ Home Health Index (HH Index) dropped 2% in April and is now down 0.8% year-to-date.

A good part of April’s drop can be attributed to one stock, Amedisys, whose end of the month earnings call resulted in a price drop of 11%….. now down to ten dollars,  a place this company has not visited since the year 2003….back to where it was ten years ago.  Is it a buy?  More on this later in this column.

The high for our HH Index was set in September, 2008 at 41.75, and then, within five months it dropped to $21.  It now sits at $15.50, down 63%.  As a comparison, during this same time period the S&P 500 is up about 75%.  We note that only LHC Group was up for the month, and only Gentiva is up YTD.

Addus HealthCare, because they have very little Medicare revenue, is not included in our HH Index  (NASDAQ:ADUS).  Last month we discussed the meteoric rise of their stock…. up 65% YTD, but even they took a hit in April, down 11.4%.

Here are the results for our HH  Index:

It is also interesting to note that,  over the past year, Amedisys and Almost Family are down substantially, while LHC Group, Gentiva and Addus are all up substantially.

 GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through April, 2013.

Take a look at that green line of Amedisys.    Ouch!

(Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride)

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index through April, 2013.

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through April, 2013.

BALANCE SHEETS:  What follows is the summarized balance sheets for the year end 2012.

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.
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Quote of the Month….now that sequestration has hit home with their 2% rate cut, we have repeated what we feel is last month’s very appropriate quote:

“The only thing I  know for sure about sequestration is that the salaries and benefits that our congressmen, congresswomen and senators receive won’t be affected one iota by sequestration.”  Harry Newton

UPDATE:  The Stoneridge Partners Home Health Index Stagnates!

The stock market in general continued its tear with the S&P 500 showing a very nice year to date increase of over 10%.  For this first quarter however our Stoneridge Partner’s Home Health Index (HH Index) is up a paltry 0.7%.

Last month we stated that, after a free-fall from the $40 area, our HH Index had stabilized.  Perhaps a better word for it now is that  it stagnates.

Since the autumn of 2008, the S&P 500 is up 75% in what we term a stealth bull market, getting very little respect, while, during this same time period, our HH Index is down 60%.

The high for our HH Index was set in September, 2008 at 41.75, and then, within five months it dropped to $21.

One Home Care Stock Shines: 

Addus HealthCare , because they have very little Medicare revenue, is not included in our HH Index  (NASDAQ:ADUS).  On March 1 they announced the sale of substantially all of the assets of their home health division (primarily Medicare).  They state that they will now focus on the dual eligible Medicaid population.

Since that sale, in this one month period, the stock price increased from 8.81 to 13.19, up 50%.  They are now up 84% YTD.  Only one year ago they were at $5.

Here are the results for our HH  Index:

 GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through March, 2013.

Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index through March, 2013.

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through March, 2013.

INDUSTRY GROWTH –What follows are the year end results for all companies in the HH Index, compared to the previous year.  By the numbers…..

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.
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Quote of the Month

Regarding Sequestration:

“The only thing I  know for sure (about sequestration) is that the salaries and benefits (esp. healthcare plans) that our congressmen, congresswomen and senators receive won’t be affected one iota by sequestration.”  Harry Newton

“The sky is falling, the sky is falling”  Chicken Little to Foxy Loxy as told by Rebecca Emberley

UPDATE:  The Stoneridge Partners Home Health Index Stabilizes!

The Dow Jones Industrial Average closes at a new all-time high…..it seems the stock market is not only unafraid of sequestration…..in fact the market seems to like it.

While the stock market in general continues climbing in this four year “stealth” bull market, the good news for the Stoneridge Partners Home Health Index is that it now appears to be stabilizing in the 15 dollar area…..very little change over the last six months.

Here are the results:

Both LHC Group and Gentiva are up nicely over this past year with Gentiva leading the pack…..up over 34% from one year ago.

The high for our HH Index was set in September, 2008 at 41.75.  It fell all the way down to 11.77 in December, 2011 and now sits at 15.70.   Its been quite a ride.

We also note that on March 1,  Addus HealthCare’s stock was  at 8.81 up a sparkling 144% from one year ago.  Impressive. They are a public company (NASDAQ:ADUS), but, because they are not dependent upon Medicare revenue, they are not included in our HH Index.

On March 1 Addus announced the sale of  substantially all of the assets of its home health division to LHC Group.  See our notes on this sale below under M&A activity.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through February, 2013.

Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index through February, 2013.

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through February, 2013.

INDUSTRY GROWTH – In a recent column we showed a chart with third quarter results for the previous three years showing virtually no revenue growth while actual gross profit dollars, due primarily to unfavorable Medicare rate cuts, actually decreased by 9%.

Based on year-end results from two of the public companies in our HH Index, this same trend seems to be continuing, with stagnant growth and significant gross profit percentage declines.  Results from Amedisys and LHC Group will be in next month’s column.

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.
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Quote of the Month:

“If Congress leaves the current laws unchanged, the debt will be 77% of GDP by the end of the decade.  At that level our country would be incurring costs and bearing risks that we have not had in our history except for a few years around the end of World War II.”

Congressional Budget Office (CBO), a nonpartisan agency that advises Congress.

UPDATE:  The Stoneridge Partners Home Health Index Drops Again!

While the S&P 500 had its best January since 1997, (the dot.com boom) up over 5%,  unfortunately our Stoneridge Partners Index (HH Index) dropped 1.58%.  Note that, although we are up 21% for the trailing 12 months, we are down 7.9% for the past 10 months.  The S&P 500 is up 6.4% for that same 10 month period.

Here are the results:

On the bright side, both LHC Group and Gentiva are up nicely over the last 10 months, and over the last 12 months LHC Group leads, up over 44%.

This past month all four stocks in our index were down, while the S&P 500 was up nicely.

The high for our Index was set in September, 2008 at 41.75….now 15.6 and dropping.

We also note that on February 1,  Addus HealthCare’s stock was  at 8.28 up a sparkling 120% for the trailing 12 months.  Impressive. They are a public company (NASDAQ:ADUS), but, because they are not heavily dependent upon Medicare revenue, they are not in our HH Index.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through January, 2013.

Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index through January, 2013.

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through January, 2013.

INDUSTRY GROWTH – In a recent column we had a chart that showed third quarter results for the previous three years showing virtually no revenue growth while actual gross profit dollars actually decreased by 9%.

In this upcoming month we will see year-end earnings reports.  First up is going to be Gentiva on February 7.  We will be watching closely, and will have a complete summary in next month’s column.

MERGER & ACQUISITION ACTIVITY

As we predicted, December brought a rush of sales as companies attempted to get transactions closed in 2012 in order to beat the increase in capital gains.  We had two substantial sales that closed after 5 pm on December 31.

Here are is a rundown of a few:

Closed by Stoneridge:

Recovery Home Care- Florida
Partners in Care – North Carolina
Premier Care – Ohio
Carefree Homecare – Arizona
Allied Home Care – Florida – merger

Other Announcements of Agencies and Hospices Sold

Home Healthcare Connection – Kansas
Excella Healthcare – Northeast
American Senior Care – Virginia
Community Homecare and Hospice – North Carolina and Texas
Sante Pediatric Services
SolAmor Hospice Care
Hospice Advantage – Michigan – Recapitalization
Homecare Advantage – California

Again, no announcements on M&A from the public companies

Capital Gains:  Regarding the increase in Capital Gains tax….it is said that this increase affects only the wealthy;  a 5% increase for those couples with taxable incomes over $450,000, and another 3.8% tax tied to the Affordable Health Care Act that affects couples with taxable incomes over $250,000. (Affordable?)

This change however may result in a tax increase of over 30% from 2012 levels.  Not peanuts.  See our complete article regarding taxes on the sale of businesses on this web site under the tab marked “Articles”.

Multiples of Economic Value EBITDA from earning results through the 3rd quarter 2012 with stock prices as of January 31, 2013.

FREE WEBINAR:  On Wednesday, February 13 at 2 pm Eastern Time we will be giving our presentation on Building the Value of a Home Health Agency – For M&A Purposes.  We have given a similar presentation at NAHC’s annual conference.  This will be updated to give you the latest information on market conditions.  To register just hit the link at the top of this page.

We would be interested in your comments. At the end of this column we have added a section for comments.  These can be sent anonymously.  The return email address can be left blank.  We are interested in what you have to say, or acquisitions that you know about.

Cartoon of the Month:

And for your general amusement from the student who flunked his exam

Q1. In which battle did Napoleon die?
* his last battle

Q2. Where was the Declaration of Independence signed?
* at the bottom of the page

Q3. River Ravi flows in which state?
* liquid

Q4. What is the main reason for divorce?
* marriage

Q5. What is the main reason for failure?
* exams

Q6. What can you never eat for breakfast?
* Lunch & dinner

Q7. What looks like half an apple?
* The other half

Q8. If you throw a red stone into the blue sea what it will become?
* It will become wet

Q9. How can a man go eight days without sleeping?
* No problem, he sleeps at night.

Q10. How can you lift an elephant with one hand?
* You will never find an elephant that has only one hand..

Q11. If it took eight men ten hours to build a wall, how long would it take four men to
build it?
* No time at all, the wall is already built.

Q12. How can u drop a raw egg onto a concrete floor without cracking it?
*Any way you want, concrete floors are very hard to crack

And for additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly:stoneridgepartners.com/blog 

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group

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This Home Health Index (HH Index) measures the performance of four publicly traded home health companies, all listed on the NASDAQ — Almost Family (AFAM), LHC Group (LHCG), Gentiva (GTIV) and Amedisys (AMED). This index is updated monthly.
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Quote of the Month…. on the Fiscal Cliff:

“This deal proves that if we all procrastinate long and hard enough, we can semi-solve any self-inflicted problem at the very last minute in a way that satisfies no one.

Much work needs to be done.  Its now up to us to concoct entirely new optional disasters that we will have to undo at some later date in a more or less half-assed way.”

Senate Minority Leader Mich McConnell

UPDATE:  The Stoneridge Partners Home Health Index gains 34.7% for the year.

Here are the results for the month of December and for the calendar year:

Although the 34.7% increase for the year makes good headlines, a closer look reveals that all of that increase took place in the first quarter.  On April first the index was at 16.9, so there has been a drop in the index of 6.4%  for the last nine months while the S&P 500 increased by 1.2% for that same period.

For the year, LHC Group led the group with a 70% increase while Amedisys’ increase of 3.67% trailed everyone.

This past month the only stock down was Gentiva.

The high for our Index was set in September, 2008 at 41.75.  Since then a huge drop.

We also note that on December 31,  Addus HealthCare’s stock was  at 7.15 up a sparkling 100% for the year.  Impressive. They are a public company (NASDAQ:ADUS), but, because they are not heavily dependent upon Medicare revenue, they are not in our HH Index.

GRAPHS:  This first graph shows the HH Index compared to the actual prices of the individual companies that make up the chart through December, 2012.

Note that by hovering your pointer over a spot, you will get the price at that point.  For the past decade, it’s been quite a ride

Stoneridge Partners Home Health Index vs. S&P 500 Index

This second chart compares the percentage change of the HH index to the percentage change in the S&P 500 index through December, 2012.

Stoneridge Partners Home Health Index 12 Months Trailing

This third graph is a 12 month trailing chart of the HH Index compared to the actual prices of the individual companies that make up the chart, through December, 2012.

INDUSTRY GROWTH – In last month’s column we had a chart that showed third quarter results for the previous three years showing virtually no revenue growth while actual gross profit dollars actually decreased by 9%.  Certainly not a growth story for these public companies.

MERGER & ACQUISITION OUTLOOK

As our graphs show, there has been a substantial drop in these stock prices.  Perhaps as a result, we have seen a large drop-off of acquisitions by these public companies.   The high for our Home Health Index was set on October 1, 2008 at 41.75.  It dropped to 32 on April 1, 2011, and now sits at 15.85.  EBITDA multiples and market cap (selling price) as a percentage of revenue are at historically low levels.

The key word here may be “Accretive”.   Accretive acquisitions are supposed to add more value to the acquiring company than the cost of the acquisition.

Looking at a company like Almost Family that has a positive balance sheet, their market cap is at about $187 million while their revenue run rate is $340 million, meaning the company is selling for about 55% of revenue, with an EBITDA multiple of about 5.

It may be difficult for a company like that to justify paying 80% to 100% of revenue, or multiples of 5 or better for  companies that may not be as well run as their own.

Perhaps as a result they recently paid out a dividend of about $20 million to shareholders….money that could have been used to fund acquisitions.

That does not mean that M&A activity has been slow.  To the contrary we closed on six transactions in the month of December alone.  This void has been filled by new categories of buyers such as hospitals and senior living companies, along with private equity groups and private equity backed regional companies.

Examples include Kindred’s recent purchase of Texas based Integracare at about 100% of revenue, and Emeritus Senior Living’s purchase of Nurse-On-Call.

The end result is that, although prices are not what they were in 2008, we continue to see solid demand for quality agencies with remarkably good prices.  The word quality needs to be emphasized, as transactions with questionable clinical or Medicare statistics, or poorly prepared financial reports simply gain no traction.

What we find most interesting is The Washington Post’s recent acquisition of Celtic Healthcare.  Here is a new entry into the home health market by a company that really does their research (owned in part by Berkshire Hathaway).  They must know something.  It appears that outsiders are now putting a higher value on the home health industry than the public companies that, in the past, have been so dominant in home health M&A.

MERGER & ACQUISITION ACTIVITY FOR THE MONTH

M&A activity was quite brisk in December as transactions were completed in order to avoid any increases in 2013 capital gains….which did indeed occur.

Stoneridge Partners closes on six transactions in the month of December, providing sell-side advisory services.:

• Recovery Homecare, a Palm Beach based Medicare agency with six locations throughout Florida was sold to a large home care and senior living provider.

• Partners in Care, an award winning private duty agency located in North Carolina, sold to a large home care company.

• Premier Care, an Ohio based Medicare agency, sold to a Central Ohio social services company.

• Carefree Homecare, a leading Arizona based private duty agency sold to a national home care company.

• An $11 million revenue Texas home health company sold to a financial buyer.  The name at this time must remain confidential.  (Hey, it really happened.)

• The final closing occurred on the merger of Allied Health Care Corp. aka Broward Home Care with a large regional home care company.

Other acquisitions in the news:

Solamar Hospice was sold to Life Choice Hospice with an announced price of $85 million.

Homecare Advantage, a California based home health agency with revenue of approx. $2.5 million was sold to Kindred Healthcare.

We expect to see several other announcements of December sales, beating the capital gains increase deadline.

EBITDA Multiples: 

Multiples of EBITDA from earning results through the 3rd quarter 2012 with stock prices as of December 31, 2012.

We would be interested in your comments. At the end of this column we have added a section for comments.  These can be sent anonymously.  The return email address can be left blank.  We are interested in what you have to say, or acquisitions that you know about.

WEBINAR:  At the end of this month we will be presenting a webinar on “Building the Value of a Home Health Agency”.  Watch your email for details.

Cartoon of the Month:

And for additional musings on the state of homecare and what’s going on at Stoneridge Partners, visit our blog, which is updated regularly:stoneridgepartners.com/blog 

Links to Google Finance: Almost Family | Amedisys | Gentiva | LHC Group

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