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3 Stocks to Watch From the Pandemic-Hit Outpatient Home Health Industry
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The COVID-19 pandemic played a key role in altering 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 currently ebbing infection rates, things are gradually getting 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. Amedisys, Inc. (AMED - Free Report) , Addus HomeCare Corporation (ADUS - Free Report) and Hanger, Inc. 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 pandemic resulted in a decline in outpatient clinic visits. Home healthcare providers struggled to offer quality care due to the risk of exposure to the virus. Though the impact of the pandemic has been far-reaching, 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, including the Medicare population, who 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.
Prominent Role of Remote Patient Monitoring: Remote patient monitoring (RPM) has been gradually gaining ground since the pandemic. During that phase, it was difficult to keep a watch on non-COVID patients in the hospital care setting as hospital capacities were brimming with COVID-19 patients. Thus, non-critical patients were increasingly being provided with healthcare at the comfort of their homes while being remotely monitored by their care providers. Even with the gradual return to normalcy, patients are increasingly preferring to be monitored from their homes via RPM devices. This is also boosting the home healthcare services as vulnerable patients can be safely and adequately cared from the home setting instead of hospital settings, where the risk of COVID-19 or other infections persists.
Zacks Industry Rank
The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #217, which places it in the bottom 14% 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 bleak 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 declined 32.7% over this period compared with the S&P 500’s decline of 14.7%. The broader sector has declined 22.1% 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 22.39X compared with the S&P 500’s 16.03X and the sector’s 19.97X.
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 20.16X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Bankable Outpatient and Home Healthcare Stocks
Hanger: Hanger is a well-known national provider of products and services that assist in enhancing or restoring the physical capabilities of patients with disabilities or injuries. Its Patient Care segment primarily comprises Hanger Clinic, which specializes in comprehensive, outcomes-based design, fabrication and delivery of custom orthotic and prosthetic devices. The company recorded a solid uptick in net revenues along with strength in its Patient Care same clinic revenue growth per day during the second quarter of 2022. HNGR carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: HNGR
For this Austin, TX-based company, the Zacks Consensus Estimate for 2022 revenues indicates an improvement of 8.3%. The same for earnings indicates an increase of 17.5%.
Amedisys: Amedisys is a renowned healthcare services company committed to helping its patients age in place by providing clinically excellent care and support in the home. Contessa, an Amedisys company, in August, announced the extension of its partnership with Mount Sinai Health System. The new combination will offer a full continuum of home-based care, including home health, hospitalization at home, rehabilitation at home (in lieu of care at a skilled nursing facility) and palliative care at home. The home health agency will be called Mount Sinai at Home.
Amedisys registered better-than-expected second-quarter 2022 earnings, which it reported in July. The company witnessed a sequential increase in the average daily census (ADC) within its Hospice division. According to the company, the continued progress on the ADC front is expected to help to drive performance in the second half of 2022. AMED carries a Zacks Rank of 3 (Hold).
Price and Consensus: AMED
For this Baton Rouge, LA-based company, the Zacks Consensus Estimate for 2022 revenues suggests growth of 3.9%. The company’s earnings yield of 5.2% compares favorably with the industry’s 4.1%.
Addus HomeCare: Addus HomeCare’s services and operating model address a number of crucial needs across the healthcare continuum. It provides services in the home to the elderly and others who require long-term care and support with the activities of daily living, thereby lowering the cost of chronic and acute care treatment by delaying or eliminating the need for care in more expensive settings. The company, in second-quarter 2022, registered a solid uptick in its overall top line. Management also confirmed that Addus HomeCare’s quarterly performance reflected strong demand for its home-based care services and the expected improvement in its volumes due to the Omicron wave in the first quarter was also witnessed. ADUS carries a Zacks Rank of 3.
Price and Consensus: ADUS
For this company, the Zacks Consensus Estimate for 2022 revenues suggests growth of 10.4%. The company’s return on equity of 8.6% compares favorably with the industry’s 6.2%.
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3 Stocks to Watch From the Pandemic-Hit Outpatient Home Health Industry
The COVID-19 pandemic played a key role in altering 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 currently ebbing infection rates, things are gradually getting 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. Amedisys, Inc. (AMED - Free Report) , Addus HomeCare Corporation (ADUS - Free Report) and Hanger, Inc. 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 pandemic resulted in a decline in outpatient clinic visits. Home healthcare providers struggled to offer quality care due to the risk of exposure to the virus. Though the impact of the pandemic has been far-reaching, 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, including the Medicare population, who 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.
Prominent Role of Remote Patient Monitoring: Remote patient monitoring (RPM) has been gradually gaining ground since the pandemic. During that phase, it was difficult to keep a watch on non-COVID patients in the hospital care setting as hospital capacities were brimming with COVID-19 patients. Thus, non-critical patients were increasingly being provided with healthcare at the comfort of their homes while being remotely monitored by their care providers. Even with the gradual return to normalcy, patients are increasingly preferring to be monitored from their homes via RPM devices. This is also boosting the home healthcare services as vulnerable patients can be safely and adequately cared from the home setting instead of hospital settings, where the risk of COVID-19 or other infections persists.
Zacks Industry Rank
The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #217, which places it in the bottom 14% 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 bleak 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 declined 32.7% over this period compared with the S&P 500’s decline of 14.7%. The broader sector has declined 22.1% 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 22.39X compared with the S&P 500’s 16.03X and the sector’s 19.97X.
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 20.16X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Bankable Outpatient and Home Healthcare Stocks
Hanger: Hanger is a well-known national provider of products and services that assist in enhancing or restoring the physical capabilities of patients with disabilities or injuries. Its Patient Care segment primarily comprises Hanger Clinic, which specializes in comprehensive, outcomes-based design, fabrication and delivery of custom orthotic and prosthetic devices. The company recorded a solid uptick in net revenues along with strength in its Patient Care same clinic revenue growth per day during the second quarter of 2022. HNGR carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: HNGR
For this Austin, TX-based company, the Zacks Consensus Estimate for 2022 revenues indicates an improvement of 8.3%. The same for earnings indicates an increase of 17.5%.
Amedisys: Amedisys is a renowned healthcare services company committed to helping its patients age in place by providing clinically excellent care and support in the home. Contessa, an Amedisys company, in August, announced the extension of its partnership with Mount Sinai Health System. The new combination will offer a full continuum of home-based care, including home health, hospitalization at home, rehabilitation at home (in lieu of care at a skilled nursing facility) and palliative care at home. The home health agency will be called Mount Sinai at Home.
Amedisys registered better-than-expected second-quarter 2022 earnings, which it reported in July. The company witnessed a sequential increase in the average daily census (ADC) within its Hospice division. According to the company, the continued progress on the ADC front is expected to help to drive performance in the second half of 2022. AMED carries a Zacks Rank of 3 (Hold).
Price and Consensus: AMED
For this Baton Rouge, LA-based company, the Zacks Consensus Estimate for 2022 revenues suggests growth of 3.9%. The company’s earnings yield of 5.2% compares favorably with the industry’s 4.1%.
Addus HomeCare: Addus HomeCare’s services and operating model address a number of crucial needs across the healthcare continuum. It provides services in the home to the elderly and others who require long-term care and support with the activities of daily living, thereby lowering the cost of chronic and acute care treatment by delaying or eliminating the need for care in more expensive settings. The company, in second-quarter 2022, registered a solid uptick in its overall top line. Management also confirmed that Addus HomeCare’s quarterly performance reflected strong demand for its home-based care services and the expected improvement in its volumes due to the Omicron wave in the first quarter was also witnessed. ADUS carries a Zacks Rank of 3.
Price and Consensus: ADUS
For this company, the Zacks Consensus Estimate for 2022 revenues suggests growth of 10.4%. The company’s return on equity of 8.6% compares favorably with the industry’s 6.2%.