Back to top

Image: Bigstock

3 Stocks to Watch From a Buoyant Outpatient Home Health Industry

Read MoreHide Full Article

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, a substantial increase in vaccination drives has been helping people gradually get back to pre-pandemic normalcy. Also, rising dependence on telehealth and artificial intelligence (AI) is likely to help the industry thrive in the near term. DaVita Inc. (DVA - Free Report) , RadNet, Inc. (RDNT - Free Report) and U.S. Physical Therapy, Inc. (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. Some of the companies in this space have been at the forefront of the COVID-19 pandemic response since 2020 by expanding access to laboratory insights to enable people to lead healthier and safer lives through 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

Cost Effectiveness: The primary advantage of 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.

Increased Dependence on Telehealth: The COVID-19 pandemic resulted in a decline in outpatient clinic visits. Meanwhile, home healthcare providers have struggled to offer quality care due to the risk of exposure to the virus. However, the impact of the pandemic has been far-reaching as it has accelerated healthcare innovation. Visits to outpatient clinics have been witnessing a noticeable rebound, with the majority of people being vaccinated, but there are patients who want to be cautious and are resorting to telehealth. Meanwhile, home healthcare can gain from the benefits provided by Medicare (and several other payers) that comprise a broad range of services that can be delivered in a patient’s home, including post-operative and chronic wound care, rehabilitation, and physical therapy. These services serve as lifelines for vulnerable patients, which include the Medicare population that can suffer from complications arising from COVID-19. Moreover, home healthcare has seen a surge in the utilization of the telehealth platform in response to the pandemic.

Zacks Industry Rank

The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #149, which places it in the bottom 41% 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 outpatient home health 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 46.8% over this period compared with the S&P 500’s decline of 6.8%. The broader sector has lost 21.6% 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 23.38X compared with the S&P 500’s 17.20X and the sector’s 20.17X.

Over the last five years, the industry has traded as high as 31.37X and as low as 16.84X, with the median being at 19.76X, 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

DaVita Inc.: DaVita is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure. The company registered an improvement in dialysis patient service revenues during the first quarter of 2022, which is impressive. The acquisition of several dialysis centers and the opening of others, both within the United States and overseas, are encouraging. The company’s improving performance overseas is another key catalyst. DaVita has been steadily expanding its presence in the international markets, thereby registering strong performances. DVA carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

For this Denver, CO-based company, the Zacks Consensus Estimate for 2022 revenues suggests growth of 1.8%. The company’s earnings yield of 8.2% compares favorably with the industry’s 3.9%.

Price and Consensus: DVA


RadNet, Inc.: RadNet, along with its subsidiaries, offers outpatient diagnostic imaging services in the United States. In the first quarter of 2022, the company witnessed record first-quarter revenue growth despite the impact of the Omicron variant of COVID-19, with the top line increasing 8.4% to $341.8 million. Recovering procedural volumes, lower costs and sustained cost containment measures contributed to the company’s robust operating performance. Backed by the positive trends that the company has been witnessing in its business and the robust financial performance in the first quarter, RadNet has increased its revenue guidance. RDNT carries a Zacks Rank of 3.

For this Los Angeles, CA-based company, the Zacks Consensus Estimate for 2022 revenues indicates an improvement of 5.8%. The company’s historical earnings growth stands at 23.1%.

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. An increase in telehealth visits and a higher net rate per patient visit have been helping USPH navigate through the ongoing pandemic. U.S. Physical Therapy continues to witness strong patient volumes at a robust pace. The company carries a Zacks Rank #3.

For this Houston, TX-based based company, the Zacks Consensus Estimate for 2022 revenues indicates an improvement of 12.8%. The same for earnings indicates an increase of 5.1%.

Price and Consensus: USPH

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

DaVita Inc. (DVA) - free report >>

RadNet, Inc. (RDNT) - free report >>

U.S. Physical Therapy, Inc. (USPH) - free report >>