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 bore the brunt of lower outpatient clinic visits and struggled to provide quality care with respect to home healthcare due to the risk of exposure to the virus. However, with the easing of prior restrictions and massive vaccination drive, the recovery has been encouraging. Also, rising dependence on telehealth and artificial intelligence (AI) is likely to help the industry thrive in the near term. Encompass Health Corporation ( EHC Quick Quote EHC - Free Report) , RadNet, Inc. ( RDNT Quick Quote RDNT - Free Report) and U.S. Physical Therapy, Inc. ( USPH Quick Quote USPH - Free Report) are likely to gain from the prospects. Industry Description
The industry comprises companies that offer ambulatory care in an outpatient setting or at home. These companies use 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.
Quest Diagnostics ( DGX Quick Quote DGX - Free Report) is one of the companies from this space that has been at the forefront of the COVID-19 pandemic response in 2020, playing a key role in expanding access to laboratory insights to enable people lead healthier and safer lives. The company offered both molecular diagnostic and antibody serology tests, which help in the diagnosis of COVID-19 and the identification of immune response to the virus. Major Trends Shaping the Future of Outpatient and Home Healthcare Industry
: 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. Cost Effectiveness : 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. Participating in Alternative Payment Models : 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’ 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. AI’s Dominant Role : The COVID-19 pandemic resulted in decline in outpatient clinic visits. Meanwhile, home healthcare providers have struggled to offer quality care due to risk of exposure to the virus. However, the impact of the pandemic can be far-reaching as it has accelerated healthcare innovation. Visits to outpatient clinics have been witnessing a rebound with the easing of stay-at-home restrictions but patients are still apprehensive about venturing out 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, which 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 seen a surge in utilization of the telehealth platform in response to the pandemic. Increased Dependence on Telehealth 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 #89, which places it in the top 38% 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. Before we present a few medical products stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture. Industry's Stock Market Performance
The industry has underperformed both its sector and the Zacks S&P 500 composite in the past year.
The industry has fallen 27.5% over this period against the S&P 500’s rally of 35.4%. The broader sector lost 2.2% in the same time frame. 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 28.75X compared with the S&P 500’s 21.41X and the sector’s 22.74X.
Over the last five years, the industry has traded as high as 31.43X and as low as 14.41X, with the median being at 18.95X, as the charts below show. Price-to-Earnings Forward Twelve Months (F12M) Price-to-Earnings Forward Twelve Months (F12M)
3 Promising Outpatient and Home Healthcare Stocks
Encompass Health Corporation: Encompass Health offers facility- and home-based post-acute healthcare services in the United States. The company delivered robust second-quarter 2021 results, which saw its business momentum advance significantly, thereby resulting in solid revenue and earnings growth in both segments. Following second-quarter 2021 results, the healthcare provider revised its 2021 business outlook. Revenues are now estimated to be $5.10-$5.25 billion, up from the prior guidance of $5.06-$5.23 billion. The mid-point of the newly-provided guidance suggests 11.4% growth from the 2020 reported figure. The company remains well-poised to grow on the back of robust expansion plans, which include inaugurating hospitals and adding beds to its existing facilities. The company carries a Zacks Rank of 2 (Buy). For this Birmingham, AL-based company, the Zacks Consensus Estimate for 2021 revenues suggests growth of 11.6%. The same for earnings indicates an improvement of 53.3%. Price and Consensus: EHC RadNet, Inc.: RadNet, along with its subsidiaries, offers outpatient diagnostic imaging services in the United States. In the second quarter of 2021, the company saw its revenues increase to an all-time quarterly record of $333.9 million. Recovering procedural volumes, and lower costs and sustained cost containment measures that were implemented in 2021, contributed to the company’s robust operating performance. Management expects substantial growth in the future on the back of strategic capital investments that the company is making. These include investments in equipment, its development efforts in AI, the pipeline for tuck-in buyouts and plans of new hospital health system joint ventures. The company carries a Zacks Rank of 1. For this Los Angeles, CA-based company, the Zacks Consensus Estimate for 2021 revenues indicates an improvement of 25.3%. The company’s earnings growth for 2021 is projected at 461.9%. Price and Consensus: RDNT 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 rate per patient visit have been helping the company navigate through the ongoing pandemic. Moreover, a raised 2021 earnings outlook is a major positive. The company flaunts a Zacks Rank #1. For this Houston, TX-based based company, the Zacks Consensus Estimate for 2021 revenues indicates an improvement of 15.5%. The same for earnings indicates an increase of 4%. Price and Consensus: USPH