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Bright Outlook for Outpatient and Home Healthcare Industry

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The Zacks Medical - Outpatient And Home Healthcareindustry consists of companies that provide 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 also includes HMO medical centers, kidney dialysis centers, freestanding ambulatory surgical units, emergency centers and other outpatient care centers.

Here are the three major industry themes:

  • Cost Effectiveness & Favorable Demographics: The primary advantage of the outpatient clinics is cost effectiveness. The outpatient medical care clinics do not retain patients for long hours (overnight) or charge heavily. This is largely why middle-class Americans, i.e. more than 62% of the total population, prefer visiting outpatient clinics. The industry should also benefit from the aging demographics of the U.S. population and the need for higher acuity patients to be taken care of in a favorable nursing environment at home or in an outpatient setting.
  • Drug Rehabilitation Centers See Rising Demand: Americans are increasingly getting addicted to a variety of drugs, which is affecting health and family to a large extent. Here, outpatient rehabs have a major role to play since the treatment they provide is comparatively cheaper than the inpatient and residential units. Further, the recent national epidemic of ‘Youth Opioid Abuse’ and President Trump’s fresh “tough on crime” policies are likely to drive demand for outpatient rehab centers.  In this regard, MedTech behemoth DaVita Inc (DVA - Free Report) deserves a mention. In 2017, The Everett Clinic, a division of DaVita, received the Washington State Medical Association's (WSMA) highest award for patient safety in the category of excellence for its chronic opioid therapy work.
  • AI’s Dominant Role: Artificial intelligence (AI) has been a roaring success in healthcare, taking the outpatient and home healthcare space by storm as well. Outpatient companies prefer bots and automated techniques for managing health information. The outpatient industry has been churning out huge profits from Electronic Health Records, Revenue Cycle Management, eLabs, ePrescriptions and many more. For investors’ notice, 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.

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 35% 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 bright 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 Outperforms S&P 500, Lags Sector

The industry has outperformed the Zacks S&P 500 composite but has lagged its own sector in the past year.

The stocks in this industry have collectively gained 5.6% compared to the Zacks Medical sector’s return of 20.6%. The S&P 500 has however increased 2%.

One Year Price Performance

Industry’s Current Valuation

On the basis of the forward 12-month Price-to-earnings (P/E) ratio, which is commonly used for valuing medical stocks, the industry is currently trading at 19.27X compared with the S&P 500’s 15.91X and the sector’s 16.41X.

Over the last five years, the industry has traded as high as 20.38X, as low as 14.76X, and at the median of 17.61X, as the charts below show.

Price-to-Earnings Forward Twelve Months (F12M)

Price-to-Earnings Forward Twelve Months (F12M)


Bottom Line

The rapid adoption of outpatient services can be attributed to technological advancement, which has made procedures shorter and less complicated. Outpatient rehabs have also played a major role.

Here, we present three stocks that either have a Zacks Rank #1 (Strong Buy) or 2 (Buy). 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.

Amedisys, Inc. (AMED - Free Report) : Amedisys provides home health and hospice services throughout the United States to the growing chronic, co-morbid, and aging American population. The stock sports a Zacks Rank #1.

The Zacks Consensus Estimate for the company’s full-year sales is pegged at $1.66 billion, showing a rise of 8% year over year. The same for adjusted earnings is pegged at $3.58 per share, reflecting an increase of 62% year over year.

Amedisys has returned 112.6% in a year’s time.

Chemed Corporation (CHE - Free Report) : The company’s VITAS Healthcare segment provides hospice and palliative care services for patients with terminal illnesses. VITAS offers all levels of hospice care in a given market, including routine home care, outpatient care and continuous care. The stock has a Zacks Rank #2.

The Zacks Consensus Estimate for the company’s full-year sales is pegged at $1.79 billion, up 7.2% year over year. The same for adjusted earnings is pegged at $11.85 per share, calling for 40.6% year-over-year growth.

Chemed has returned 25.8% in a year’s time.

Hanger Inc. (HNGR - Free Report) : The company delivers orthotic and prosthetic patient care, and distributes O&P products and rehabilitative solutions. The stock has a Zacks Rank #2.

The Zacks Consensus Estimate for the company’s full-year sales is pegged at $1.05 billion, showing a rise of 1.1% year over year. The same for adjusted earnings is pegged at 75 cents, up 127.3% year over year.

Hanger has returned 57.2% in a year’s time.

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