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3 Top Outpatient and Home Healthcare Stocks to Watch Out For
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The COVID-19 pandemic has been a biological crisis of unprecedented nature that has altered the very nature and dynamics of the healthcare industry. The Zacks Medical - Outpatient and Home Healthcare industry has not only been bearing the brunt of lower outpatient clinic visits but also grappling to provide quality care with respect to home healthcare due to the risk of exposure to the virus. However, rising dependence on telehealth and artificial intelligence (AI) is likely to help the industry thrive in the near term. DaVita Inc. (DVA - Free Report) , U.S. Physical Therapy, Inc. (USPH - Free Report) and The Pennant Group, Inc. (PNTG - Free Report) are likely to gain from the prospects.
Industry Description
This industry comprises companies that provide ambulatory care in an outpatient setting or at home. These companies utilize advanced medical technologies for diagnosis, observation, consultation, treatment and rehabilitation services. The industry participants also include operators of HMO medical centers, kidney dialysis centers, freestanding ambulatory surgical units, emergency centers and other outpatient care centers.
Major Trends Shaping the Future of Outpatient and Home Healthcare Industry
Cost Effectiveness: The primary advantage of the outpatient clinics is cost effectiveness. Outpatient medical care clinics do not retain patients for long hours (overnight) or charge exorbitantly. Notably, modern day outpatient clinics offer a broad spectrum of treatment and diagnostic options, and even minor surgical procedures. Financial incentives like health plans and government program payment policies supporting services in lower-cost care settings have also been driving outpatient care. In fact, this is the primary reason why middle-class Americans, making up more than 62% of the total population, prefer outpatient clinic visits.
Participating in Alternative Payment Models: It only seems reasonable for outpatient clinics to shift from fee-for-service (FFS) to alternative payment models (APM) with shared savings, risk, bundled payments or population-based payments. With value-based models of care steadily emerging as the future of healthcare, this shift is an ongoing parallel trend. FFS will be crucial to care organizations as a benchmark by which providers can assess alternative payment models. By obtaining the payment schedule from payers and comparing it to the organization’s FFS reimbursements from the same payer, providers can ascertain APM that would be financially the most advantageous to its operation.
AI’s Dominant Role: AI has been a roaring success in healthcare. It’s no wonder that it has taken the outpatient and home healthcare space by storm. Outpatient companies prefer bots and automated techniques for managing health information. With the help of AI, hospitals have been achieving better outcomes with patients receiving more efficient and personalized care. The outpatient industry has been generating huge profits from Electronic Health Records, Revenue Cycle Management, eLabs and ePrescriptions. Notably, Quest Diagnostics’ (DGX - Free Report) Quanum solutions unit is an AI platform that streamlines 20 billion laboratory data test results and other health information for population health management and clinical care.
Increased Dependence on Telehealth: The COVID-19 pandemic resulted in decline in outpatient clinic visits, while home healthcare providers have also struggled to offer quality care owing to the risk of exposure to the virus. However, the impact of the pandemic can be far-reaching as the pandemic has proven itself to be a healthcare innovation catalyst. Visits to outpatient clinics have been witnessing a rebound with the easing of stay-at-home restrictions but patients are still apprehensive about contracting the deadly disease and are resorting to telehealth. Meanwhile, home healthcare can gain from the benefits provided by Medicare (and several other payers) that comprises a broad range of services that can be delivered in a patient’s home, including post-operative and chronic wound care, rehabilitation, physical therapy. These services serve as lifelines for vulnerable patients, which include Medicare population that can suffer from complications arising from COVID-19. Moreover, home healthcare has also seen a surge in telehealth platform in response to the pandemic.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #47, which places it in the top 19% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry’s Stock Market Performance
The industry has marginally underperformed both its sector and the Zacks S&P 500 composite in the past year.
The industry has returned 8.4% over this period compared with the S&P 500’s rally of 13.8%. Notably, the broader sector has risen 9.5% in the same timeframe.
One Year Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 19.59X compared with the S&P 500’s 23.04X and the sector’s 22.3X.
Over the last five years, the industry has traded as high as 22.66X and as low as 14.49X, with the median being at 17.77X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Lucrative Outpatient and Home Healthcare Stocks
We will discuss here three stocks that carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy), which investors can take a look at. These stocks are well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
DaVita Inc.: DaVita is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD). It provides outpatient dialysis, hospital inpatient dialysis and ancillary services such as ESRD laboratory and disease management. The company’s strategy of acquiring dialysis centers and businesses that own and operate dialysis centers, and ancillary services continues to drive its top line. As of Jun 30, 2020, the company provided dialysis services to a total of approximately 236,800 patients at 3,082 outpatient dialysis centers, of which 2,795 centers were located in the United States and 287 centers in 10 other countries. The company sports a Zacks Rank of 1.
For this Denver, CO-based company, the Zacks Consensus Estimate for 2020 revenues suggests growth of 25%. It has a trailing four-quarter earnings surprise of 28.2%, on average.
Price and Consensus: DVA
U.S. Physical Therapy, Inc.: U.S. Physical Therapy is the largest publicly-traded, pure-play operator of outpatient physical and occupational therapy clinics. The clinics provide pre- and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, rehabilitation of injured workers and preventative care. Increase in telehealth visits and higher net patient revenue per visit rate have been helping the company navigate through the ongoing pandemic. The company carries a Zacks Rank #2.
For this Houston, TX-based based company, the expected long-term earnings growth rate is pegged at 12%. It has a trailing four-quarter earnings surprise of 229.2%, on average.
Price and Consensus: USPH
The Pennant Group, Inc.: Pennant Group, via its subsidiaries, provides home health, hospice and senior living services. Despite the COVID-19 challenges, the company’s Home Health and Hospice segment continues to deliver strong performance, thereby driving top-line growth. The company carries a Zacks Rank of 2.
For this Eagle, ID-based company, the Zacks Consensus Estimate for 2020 revenues indicates an improvement of 12.8%. The same for earnings suggests growth of 9.8%.
Price and Consensus: PNTG
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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3 Top Outpatient and Home Healthcare Stocks to Watch Out For
The COVID-19 pandemic has been a biological crisis of unprecedented nature that has altered the very nature and dynamics of the healthcare industry. The Zacks Medical - Outpatient and Home Healthcare industry has not only been bearing the brunt of lower outpatient clinic visits but also grappling to provide quality care with respect to home healthcare due to the risk of exposure to the virus. However, rising dependence on telehealth and artificial intelligence (AI) is likely to help the industry thrive in the near term. DaVita Inc. (DVA - Free Report) , U.S. Physical Therapy, Inc. (USPH - Free Report) and The Pennant Group, Inc. (PNTG - Free Report) are likely to gain from the prospects.
Industry Description
This industry comprises companies that provide ambulatory care in an outpatient setting or at home. These companies utilize advanced medical technologies for diagnosis, observation, consultation, treatment and rehabilitation services. The industry participants also include operators of HMO medical centers, kidney dialysis centers, freestanding ambulatory surgical units, emergency centers and other outpatient care centers.
Major Trends Shaping the Future of Outpatient and Home Healthcare Industry
Cost Effectiveness: The primary advantage of the outpatient clinics is cost effectiveness. Outpatient medical care clinics do not retain patients for long hours (overnight) or charge exorbitantly. Notably, modern day outpatient clinics offer a broad spectrum of treatment and diagnostic options, and even minor surgical procedures. Financial incentives like health plans and government program payment policies supporting services in lower-cost care settings have also been driving outpatient care. In fact, this is the primary reason why middle-class Americans, making up more than 62% of the total population, prefer outpatient clinic visits.
Participating in Alternative Payment Models: It only seems reasonable for outpatient clinics to shift from fee-for-service (FFS) to alternative payment models (APM) with shared savings, risk, bundled payments or population-based payments. With value-based models of care steadily emerging as the future of healthcare, this shift is an ongoing parallel trend. FFS will be crucial to care organizations as a benchmark by which providers can assess alternative payment models. By obtaining the payment schedule from payers and comparing it to the organization’s FFS reimbursements from the same payer, providers can ascertain APM that would be financially the most advantageous to its operation.
AI’s Dominant Role: AI has been a roaring success in healthcare. It’s no wonder that it has taken the outpatient and home healthcare space by storm. Outpatient companies prefer bots and automated techniques for managing health information. With the help of AI, hospitals have been achieving better outcomes with patients receiving more efficient and personalized care. The outpatient industry has been generating huge profits from Electronic Health Records, Revenue Cycle Management, eLabs and ePrescriptions. Notably, Quest Diagnostics’ (DGX - Free Report) Quanum solutions unit is an AI platform that streamlines 20 billion laboratory data test results and other health information for population health management and clinical care.
Increased Dependence on Telehealth: The COVID-19 pandemic resulted in decline in outpatient clinic visits, while home healthcare providers have also struggled to offer quality care owing to the risk of exposure to the virus. However, the impact of the pandemic can be far-reaching as the pandemic has proven itself to be a healthcare innovation catalyst. Visits to outpatient clinics have been witnessing a rebound with the easing of stay-at-home restrictions but patients are still apprehensive about contracting the deadly disease and are resorting to telehealth. Meanwhile, home healthcare can gain from the benefits provided by Medicare (and several other payers) that comprises a broad range of services that can be delivered in a patient’s home, including post-operative and chronic wound care, rehabilitation, physical therapy. These services serve as lifelines for vulnerable patients, which include Medicare population that can suffer from complications arising from COVID-19. Moreover, home healthcare has also seen a surge in telehealth platform in response to the pandemic.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #47, which places it in the top 19% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry’s Stock Market Performance
The industry has marginally underperformed both its sector and the Zacks S&P 500 composite in the past year.
The industry has returned 8.4% over this period compared with the S&P 500’s rally of 13.8%. Notably, the broader sector has risen 9.5% in the same timeframe.
One Year Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 19.59X compared with the S&P 500’s 23.04X and the sector’s 22.3X.
Over the last five years, the industry has traded as high as 22.66X and as low as 14.49X, with the median being at 17.77X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Lucrative Outpatient and Home Healthcare Stocks
We will discuss here three stocks that carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy), which investors can take a look at. These stocks are well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
DaVita Inc.: DaVita is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD). It provides outpatient dialysis, hospital inpatient dialysis and ancillary services such as ESRD laboratory and disease management. The company’s strategy of acquiring dialysis centers and businesses that own and operate dialysis centers, and ancillary services continues to drive its top line. As of Jun 30, 2020, the company provided dialysis services to a total of approximately 236,800 patients at 3,082 outpatient dialysis centers, of which 2,795 centers were located in the United States and 287 centers in 10 other countries. The company sports a Zacks Rank of 1.
For this Denver, CO-based company, the Zacks Consensus Estimate for 2020 revenues suggests growth of 25%. It has a trailing four-quarter earnings surprise of 28.2%, on average.
Price and Consensus: DVA
U.S. Physical Therapy, Inc.: U.S. Physical Therapy is the largest publicly-traded, pure-play operator of outpatient physical and occupational therapy clinics. The clinics provide pre- and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, rehabilitation of injured workers and preventative care. Increase in telehealth visits and higher net patient revenue per visit rate have been helping the company navigate through the ongoing pandemic. The company carries a Zacks Rank #2.
For this Houston, TX-based based company, the expected long-term earnings growth rate is pegged at 12%. It has a trailing four-quarter earnings surprise of 229.2%, on average.
Price and Consensus: USPH
The Pennant Group, Inc.: Pennant Group, via its subsidiaries, provides home health, hospice and senior living services. Despite the COVID-19 challenges, the company’s Home Health and Hospice segment continues to deliver strong performance, thereby driving top-line growth. The company carries a Zacks Rank of 2.
For this Eagle, ID-based company, the Zacks Consensus Estimate for 2020 revenues indicates an improvement of 12.8%. The same for earnings suggests growth of 9.8%.
Price and Consensus: PNTG
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>