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4 Stocks to Hold in a Challenging Outpatient Home Health Industry
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The pandemic altered the nature and dynamics of the healthcare industry. The Zacks Medical - Outpatient and Home Healthcare industry, after struggling with lower outpatient clinic visits and inability to provide quality home healthcare, has gradually shifted to digital healthcare treatment. In the past few years, there has been a significant rise in demand for telemedicine-focused online medical and artificial intelligence (AI)-powered technology services. During the pandemic, many healthcare companies that were traditionally not technology-based transformed to survive in the market. Another factor prompting these MedTech players to embrace digital healthcare is the persistent staffing shortages. Per a February 2023 report by Research and Markets, WHO estimates that there will be a shortage of 10 million health workers in low- and lower-middle-income countries by 2030.
On a positive note, rising dependence on telehealth and AI is likely to help the industry thrive in the near term. DaVita Inc. (DVA - Free Report) , Chemed Corporation (CHE - Free Report) , Amedisys, Inc. (AMED - Free Report) and Addus HomeCare Corporation (ADUS - 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. They use advanced medical technologies for diagnosis, treatment and rehabilitation services. The industry players include operators of HMO medical centers, kidney dialysis centers and other outpatient care centers. Though the period between 2020 and 2021 were challenging for payers and providers, innovation and growth continued unabated in services. This buoys optimism about prospects over the next few years, although persistent inflation in consumer prices could dent the outlook. The potential for scaling up innovation, prompted by pandemic’s pressure on the healthcare system, is an added plus. Also, acceleration of value-based care models and increasing application of technology across the healthcare industry are likely to continue in the long run.
Major Trends Shaping the Future of the 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. 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.
Participating in APM: 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, the shift is an ongoing parallel trend. FFS will be crucial to care organizations as a benchmark through which providers can assess APM.
AI’s Dominant Role: AI has been a roaring success in healthcare. It is 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 and ePrescriptions.
The most visible area where AI can make a significant difference is in mental healthcare at home. Addressing the most prevalent mental health conditions among home care patients —depression, anxiety and dementia — is essential to improve overall patient well-being. In recent years, complex machine learning algorithms have become capable of analyzing large datasets of patient information, including clinical and social diagnoses. These systems can alert caregivers regarding potential triggers or warning signs of mental health deterioration.
Dependence on Telehealth: The pandemic caused 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. 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. Home healthcare has seen a surge in the utilization of the telehealth platform in response to the pandemic. With the rise in elderly population and the increasing costs of in-person health care, the demand for home-based health care will emerge. People with chronic illnesses and disabilities also require home-based care.
Remote Patient Monitoring: Remote patient monitoring (RPM) has been gradually gaining ground since the pandemic. Even with the return to normalcy, patients are preferring to be monitored from their homes via RPM devices, boosting home healthcare services as vulnerable patients can be safely and adequately cared from the home setting instead of hospital settings, where the risk of infections persists.
The rising demand for RPM has considerably driven the demand for wearable technology to monitor patient’s health. Although wearables have been popular for several years, in recent times their integration with AI has increased their popularity immensely and have become a powerful home healthcare tool. AI technology-powered RPM enables healthcare firms to provide consistent patient care without occupying space in their hospitals and facilities, thus reducing overcrowding.
Staffing Shortages: The U.S. healthcare industry has been experiencing a severe shortage of workers at every level, worsened by the COVID-19 pandemic. Among support personnel, there is a laxity of home health aides. The increasing international migration of health workers may aggravate health workforce shortfalls, especially in low- and lower-middle income countries. Another reason for the acute staffing shortage is high burnout due to physical, emotional and mental exhaustion. Thus, these overworked employees are leaving the profession at an accelerating rate.
Healthcare staffing shortages lead to poor patient outcomes that can include hospital-acquired infections, patient falls and increased probabilities of death. With lesser number of staff available in hospital settings for patient care, there has been a gradual shift toward home healthcare for non-critical patients who can be monitored remotely.
Zacks Industry Rank
The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #188, which places it in the bottom 25% of nearly 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 9.9% over this period compared with the S&P 500’s rise of 14.6%. The broader sector has declined 2.4% in the same time frame.
One Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), commonly used for valuing medical stocks, the industry is currently trading at 19.6X compared with the S&P 500’s 19.2X and the sector’s 22.4X.
Over the last five years, the industry has traded as high as 24.9X and as low as 16.6X, with the median being at 19.2X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Image Source: Zacks Investment Research
Price-to-Earnings Forward Twelve Months (F12M)
Image Source: Zacks Investment Research
4 Outpatient and Home Healthcare Stocks to Keep a Watch on
DaVita: DaVita, a renowned global comprehensive kidney care provider, reported its first-quarter 2023 results in May. The company registered an uptick in its overall top line and both segments during the period. The upside in total U.S. dialysis treatments during the quarter was also recorded. The opening of several dialysis centers within the United States and overseas was also seen.
For this Denver, CO-based company, the Zacks Consensus Estimate for 2023 revenues suggests growth of 1.4%. The same for earnings indicates an increase of 1.4%. The company’s return on equity (ROE) of 72.1% compares favorably with the industry’s 6.6%.
Chemed: Chemed operates through two wholly owned subsidiaries — VITAS Healthcare Corporation (a renowned provider of end-of-life care) and Roto-Rooter (a well-known commercial and residential plumbing and drain cleaning services provider).
The company reported its first-quarter 2023 results in April, registering strong performances across VITAS and Roto-Rooter, which drove the top line. Within the Roto-Rooter branch, the aggregate commercial and residential revenue growth was supported by substantial increases in commercial drain cleaning, plumbing, excavation and water restoration revenues in the quarter under review. CHE carries a Zacks Rank of 3.
Price and Consensus: CHE
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Chemed’s 2023 revenues suggests growth of 5.8%. The same for earnings indicates an increase of 5.2%. The company’s ROE of 37.8% compares favorably with the industry’s 6.6%.
Amedisys: Amedisys, a well-known provider of home health, hospice and high-acuity care, reported its first-quarter 2023 results in May, wherein it registered an uptick in its overall net service revenues. The company also saw strength in the Home Health Division’s net service revenues. Within this segment, non-Medicare revenues increased 14.6%. Although the Hospice Division’s net service revenues declined year over year, its Medicare and non-Medicare revenues were up 0.1% and 0.9%, respectively.
In the same month, Amedisys also entered into a definitive merger agreement with Option Care Health to combine in an all-stock transaction. AMED carries a Zacks Rank of 3.
Price and Consensus: AMED
Image Source: Zacks Investment Research
For this Baton Rouge, LA-based company, the Zacks Consensus Estimate for 2023 revenues suggests growth of 1.5%. The company’s ROE of 14.4% compares favorably with the industry’s 6.6%.
Addus HomeCare: Addus HomeCare is a well-known provider of home care services. Last month, Addus HomeCare announced its first-quarter 2023 results, registering a solid uptick in its net service revenues. Management confirmed that its largest personal care market of Illinois recently received Centers for Medicare & Medical Services’ approval for its most recent rate increase to be effective on Apr 1, 2023. This rate increase was in addition to the previously-announced rate increase in Illinois that was effective Jan 1, 2023. Management also confirmed that its personal care and home health revenues increased year over year on a same-store basis. Addus HomeCare also registered improved volume trends during the quarter. ADUS carries a Zacks Rank of 3.
Price and Consensus: ADUS
Image Source: Zacks Investment Research
For this company, the Zacks Consensus Estimate for 2023 revenues suggests growth of 8.3%. The same for earnings indicates an increase of 9.7%. The company’s ROE of 8.9% compares favorably with the industry’s 6.6%.
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4 Stocks to Hold in a Challenging Outpatient Home Health Industry
The pandemic altered the nature and dynamics of the healthcare industry. The Zacks Medical - Outpatient and Home Healthcare industry, after struggling with lower outpatient clinic visits and inability to provide quality home healthcare, has gradually shifted to digital healthcare treatment. In the past few years, there has been a significant rise in demand for telemedicine-focused online medical and artificial intelligence (AI)-powered technology services. During the pandemic, many healthcare companies that were traditionally not technology-based transformed to survive in the market. Another factor prompting these MedTech players to embrace digital healthcare is the persistent staffing shortages. Per a February 2023 report by Research and Markets, WHO estimates that there will be a shortage of 10 million health workers in low- and lower-middle-income countries by 2030.
On a positive note, rising dependence on telehealth and AI is likely to help the industry thrive in the near term. DaVita Inc. (DVA - Free Report) , Chemed Corporation (CHE - Free Report) , Amedisys, Inc. (AMED - Free Report) and Addus HomeCare Corporation (ADUS - 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. They use advanced medical technologies for diagnosis, treatment and rehabilitation services. The industry players include operators of HMO medical centers, kidney dialysis centers and other outpatient care centers. Though the period between 2020 and 2021 were challenging for payers and providers, innovation and growth continued unabated in services. This buoys optimism about prospects over the next few years, although persistent inflation in consumer prices could dent the outlook. The potential for scaling up innovation, prompted by pandemic’s pressure on the healthcare system, is an added plus. Also, acceleration of value-based care models and increasing application of technology across the healthcare industry are likely to continue in the long run.
Major Trends Shaping the Future of the 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. 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.
Participating in APM: 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, the shift is an ongoing parallel trend. FFS will be crucial to care organizations as a benchmark through which providers can assess APM.
AI’s Dominant Role: AI has been a roaring success in healthcare. It is 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 and ePrescriptions.
The most visible area where AI can make a significant difference is in mental healthcare at home. Addressing the most prevalent mental health conditions among home care patients —depression, anxiety and dementia — is essential to improve overall patient well-being. In recent years, complex machine learning algorithms have become capable of analyzing large datasets of patient information, including clinical and social diagnoses. These systems can alert caregivers regarding potential triggers or warning signs of mental health deterioration.
Dependence on Telehealth: The pandemic caused 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. 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. Home healthcare has seen a surge in the utilization of the telehealth platform in response to the pandemic. With the rise in elderly population and the increasing costs of in-person health care, the demand for home-based health care will emerge. People with chronic illnesses and disabilities also require home-based care.
Remote Patient Monitoring: Remote patient monitoring (RPM) has been gradually gaining ground since the pandemic. Even with the return to normalcy, patients are preferring to be monitored from their homes via RPM devices, boosting home healthcare services as vulnerable patients can be safely and adequately cared from the home setting instead of hospital settings, where the risk of infections persists.
The rising demand for RPM has considerably driven the demand for wearable technology to monitor patient’s health. Although wearables have been popular for several years, in recent times their integration with AI has increased their popularity immensely and have become a powerful home healthcare tool. AI technology-powered RPM enables healthcare firms to provide consistent patient care without occupying space in their hospitals and facilities, thus reducing overcrowding.
Staffing Shortages: The U.S. healthcare industry has been experiencing a severe shortage of workers at every level, worsened by the COVID-19 pandemic. Among support personnel, there is a laxity of home health aides. The increasing international migration of health workers may aggravate health workforce shortfalls, especially in low- and lower-middle income countries. Another reason for the acute staffing shortage is high burnout due to physical, emotional and mental exhaustion. Thus, these overworked employees are leaving the profession at an accelerating rate.
Healthcare staffing shortages lead to poor patient outcomes that can include hospital-acquired infections, patient falls and increased probabilities of death. With lesser number of staff available in hospital settings for patient care, there has been a gradual shift toward home healthcare for non-critical patients who can be monitored remotely.
Zacks Industry Rank
The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #188, which places it in the bottom 25% of nearly 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 9.9% over this period compared with the S&P 500’s rise of 14.6%. The broader sector has declined 2.4% in the same time frame.
One Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), commonly used for valuing medical stocks, the industry is currently trading at 19.6X compared with the S&P 500’s 19.2X and the sector’s 22.4X.
Over the last five years, the industry has traded as high as 24.9X and as low as 16.6X, with the median being at 19.2X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Image Source: Zacks Investment Research
Price-to-Earnings Forward Twelve Months (F12M)
Image Source: Zacks Investment Research
4 Outpatient and Home Healthcare Stocks to Keep a Watch on
DaVita: DaVita, a renowned global comprehensive kidney care provider, reported its first-quarter 2023 results in May. The company registered an uptick in its overall top line and both segments during the period. The upside in total U.S. dialysis treatments during the quarter was also recorded. The opening of several dialysis centers within the United States and overseas was also seen.
DVA carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: DVA
Image Source: Zacks Investment Research
For this Denver, CO-based company, the Zacks Consensus Estimate for 2023 revenues suggests growth of 1.4%. The same for earnings indicates an increase of 1.4%. The company’s return on equity (ROE) of 72.1% compares favorably with the industry’s 6.6%.
Chemed: Chemed operates through two wholly owned subsidiaries — VITAS Healthcare Corporation (a renowned provider of end-of-life care) and Roto-Rooter (a well-known commercial and residential plumbing and drain cleaning services provider).
The company reported its first-quarter 2023 results in April, registering strong performances across VITAS and Roto-Rooter, which drove the top line. Within the Roto-Rooter branch, the aggregate commercial and residential revenue growth was supported by substantial increases in commercial drain cleaning, plumbing, excavation and water restoration revenues in the quarter under review. CHE carries a Zacks Rank of 3.
Price and Consensus: CHE
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Chemed’s 2023 revenues suggests growth of 5.8%. The same for earnings indicates an increase of 5.2%. The company’s ROE of 37.8% compares favorably with the industry’s 6.6%.
Amedisys: Amedisys, a well-known provider of home health, hospice and high-acuity care, reported its first-quarter 2023 results in May, wherein it registered an uptick in its overall net service revenues. The company also saw strength in the Home Health Division’s net service revenues. Within this segment, non-Medicare revenues increased 14.6%. Although the Hospice Division’s net service revenues declined year over year, its Medicare and non-Medicare revenues were up 0.1% and 0.9%, respectively.
In the same month, Amedisys also entered into a definitive merger agreement with Option Care Health to combine in an all-stock transaction. AMED carries a Zacks Rank of 3.
Price and Consensus: AMED
Image Source: Zacks Investment Research
For this Baton Rouge, LA-based company, the Zacks Consensus Estimate for 2023 revenues suggests growth of 1.5%. The company’s ROE of 14.4% compares favorably with the industry’s 6.6%.
Addus HomeCare: Addus HomeCare is a well-known provider of home care services. Last month, Addus HomeCare announced its first-quarter 2023 results, registering a solid uptick in its net service revenues. Management confirmed that its largest personal care market of Illinois recently received Centers for Medicare & Medical Services’ approval for its most recent rate increase to be effective on Apr 1, 2023. This rate increase was in addition to the previously-announced rate increase in Illinois that was effective Jan 1, 2023. Management also confirmed that its personal care and home health revenues increased year over year on a same-store basis. Addus HomeCare also registered improved volume trends during the quarter. ADUS carries a Zacks Rank of 3.
Price and Consensus: ADUS
Image Source: Zacks Investment Research
For this company, the Zacks Consensus Estimate for 2023 revenues suggests growth of 8.3%. The same for earnings indicates an increase of 9.7%. The company’s ROE of 8.9% compares favorably with the industry’s 6.6%.