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4 Stocks to Watch From a Challenging Outpatient Home Health Industry
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In the post-pandemic period, the Zacks Medical - Outpatient and Home Healthcare industry has been witnessing a rapid shift toward digital healthcare treatment, including telehealth. In the past few years, many healthcare companies have been facing labor shortages, which is leading to increased adoption of artificial intelligence (AI)-powered technology services and remote patient monitoring. Per a report by Precedence Research, the global home healthcare market was valued at $373.56 billion in 2023 and is anticipated to reach $1,469.92 billion by 2033 at a CAGR of approximately 14.8%. Another factor prompting these MedTech players to embrace digital healthcare is the skyrocketing healthcare costs.
On a positive note, rising dependence on telehealth and AI is likely to help the industry thrive in the near term. Quest Diagnostics Incorporated (DGX - Free Report) , DaVita Inc. (DVA - Free Report) , Encompass Health Corporation (EHC - 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 players include operators of HMO medical centers, kidney dialysis centers and other outpatient care centers. After navigating a tough pandemic era, the payers and providers have been seeing steady growth on the back of innovation 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 the pandemic’s pressure on the healthcare system, is an added plus. Also, the acceleration of value-based care models and the 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: Rising healthcare costs pose a challenge to quality, access and affordability worldwide. The COVID-19 pandemic intensified staffing shortages and inflation, driving up costs further. Technology-enabled models offer potential solutions for delivering more efficient and cost-effective care.
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.
AI’s Dominant Role: AI has been a roaring success in healthcare. 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 (EHRs) and ePrescriptions.
Healthcare organizations are beginning to implement innovative technologies such as virtual wards and AI-enabled diagnostic tools to reduce costs of age-related care. Providers also are investing in technology to accelerate diagnoses and reduce treatment costs for chronic diseases.
Virtual Healthcare Assistants: Virtual assistants and chatbots can help patients by answering questions about their care and connecting them with the information they need to make more informed decisions about their care. Increasingly, they will interface with EHR systems and be used to book and schedule appointments. They can also help patients stay compliant by reminding them to take medications or exercise.
Dependence on Telehealth: The pandemic has accelerated healthcare innovation. 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. Home healthcare has seen a surge in the utilization of the telehealth platform in response to the pandemic. With a rise in the elderly population and the increasing costs of in-person health care, the demand for home-based health care is on the rise. People with chronic illnesses and disabilities also require home-based care.
Currently, Internet of Things (IoT)-powered virtual hospitals and telemedicine are quite popular. This trend includes both telemedicine and wearable devices connected to the global network, known as the IoT. By using connected devices to remotely monitor patients and provide communication channels for healthcare professionals, more elements of care can be delivered remotely.
Staffing Shortages: The U.S. healthcare industry has been experiencing a severe shortage of workers at every level. Per a report by Deloitte, the global healthcare sector faces a severe shortage of workers, with projections indicating a shortfall of 10 million by 2030, driven by various factors, including burnout, limited talent pipelines, demographic changes and migration rates. The demand for healthcare workers is expected to surge 29% in the next decade, requiring transformative measures to address this critical challenge.
The increasing international migration of health workers may aggravate health workforce shortfalls, especially in low-income and lower-middle-income countries. Healthcare staffing shortages lead to poor patient outcomes that can include hospital-acquired infections, patient falls and increased probabilities of death. With a 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 #155, which places it in the bottom 38% 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 outperformed its sector but underperformed the Zacks S&P 500 Composite in the past year.
The industry has gained 14.4% over this period compared with the S&P 500’s rise of 18.8% and the broader sector’s rise of 5.6%.
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 20.9X compared with the S&P 500’s 21.2X and the sector’s 23.5X.
Over the last five years, the industry has traded as high as 25.8X and as low as 17X, with the median being at 20.4X, 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 Watch Now
Quest Diagnostics: Quest Diagnostics, a well-known diagnostic information services provider, announced a global collaboration agreement with Becton Dickinson and Company (popularly known as BD) this month. The tie-up aims to develop, manufacture and commercialize flow cytometry-based companion diagnostics intended to help select the best treatment for patients with cancer and other diseases. The same month, Quest Diagnostics reported its second-quarter 2024 results, wherein it registered an uptick in its top line. Its base business revenue growth was also solid.
DGX carries a Zacks Rank #2 (Buy).
For this Secaucus, NJ-based company, the Zacks Consensus Estimate for 2024 revenues suggests growth of 2.9%. The same for earnings indicates an increase of 1.9%.
Image Source: Zacks Investment Research
The company’s return on equity (ROE) of 15.4% compares favorably with the industry’s 9%.
DaVita: DaVita, a renowned global comprehensive kidney care provider, reported its first-quarter 2024 results in May. The company registered an uptick in its overall top-line and bottom-line performances. Strength in both dialysis patient service and Other revenues during the period was also recorded. The opening of dialysis centers within the United States and acquiring centers overseas was also seen.
For this Denver, CO-based company, the Zacks Consensus Estimate for 2024 revenues suggests growth of 4.9%. The same for earnings indicates an increase of 13.6%.
Image Source: Zacks Investment Research
The company’s ROE of 68.5% compares favorably with the industry’s 9%.
Encompass Health: Encompass Health, the owner and operator of inpatient rehabilitation hospitals in the United States, announced the opening of Encompass Health Rehabilitation Hospital of Johnston, a 50-bed inpatient rehabilitation hospital in Johnston, RI. In April, the company reported its first-quarter 2024 results, wherein it saw a robust uptick in its overall top line, primarily driven by discharge growth (including robust same-store growth).
EHC currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for Encompass Health’s 2024 earnings suggests growth of 10.4%. The same for earnings indicates an increase of 12.4%.
Image Source: Zacks Investment Research
The company’s ROE of 18% compares favorably with the industry’s 9%.
Addus HomeCare: Addus HomeCare, a key provider of home care services, announced a definitive agreement to acquire the personal care operations of Gentiva in June. Management expects the acquisition to expand the company’s personal care market coverage in seven states, including Texas and Missouri, which are new markets for Addus HomeCare. In May, it announced its first-quarter 2024 results, where it registered a solid uptick in its net service revenues. Management confirmed that its personal care revenues (accounting for 74.1% of overall revenues) improved year over year on a same-store basis, reflecting steady volume growth trends. Home health and Hospice revenues were also up year over year.
ADUS presently carries a Zacks Rank of 3.
For this Frisco, TX-based company, the Zacks Consensus Estimate for 2024 revenues suggests growth of 6.5%. The same for earnings indicates an increase of 9.2%.
Image Source: Zacks Investment Research
The company’s ROE of 10% compares favorably with the industry’s 9%.
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4 Stocks to Watch From a Challenging Outpatient Home Health Industry
In the post-pandemic period, the Zacks Medical - Outpatient and Home Healthcare industry has been witnessing a rapid shift toward digital healthcare treatment, including telehealth. In the past few years, many healthcare companies have been facing labor shortages, which is leading to increased adoption of artificial intelligence (AI)-powered technology services and remote patient monitoring. Per a report by Precedence Research, the global home healthcare market was valued at $373.56 billion in 2023 and is anticipated to reach $1,469.92 billion by 2033 at a CAGR of approximately 14.8%. Another factor prompting these MedTech players to embrace digital healthcare is the skyrocketing healthcare costs.
On a positive note, rising dependence on telehealth and AI is likely to help the industry thrive in the near term. Quest Diagnostics Incorporated (DGX - Free Report) , DaVita Inc. (DVA - Free Report) , Encompass Health Corporation (EHC - 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 players include operators of HMO medical centers, kidney dialysis centers and other outpatient care centers. After navigating a tough pandemic era, the payers and providers have been seeing steady growth on the back of innovation 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 the pandemic’s pressure on the healthcare system, is an added plus. Also, the acceleration of value-based care models and the 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: Rising healthcare costs pose a challenge to quality, access and affordability worldwide. The COVID-19 pandemic intensified staffing shortages and inflation, driving up costs further. Technology-enabled models offer potential solutions for delivering more efficient and cost-effective care.
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.
AI’s Dominant Role: AI has been a roaring success in healthcare. 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 (EHRs) and ePrescriptions.
Healthcare organizations are beginning to implement innovative technologies such as virtual wards and AI-enabled diagnostic tools to reduce costs of age-related care. Providers also are investing in technology to accelerate diagnoses and reduce treatment costs for chronic diseases.
Virtual Healthcare Assistants: Virtual assistants and chatbots can help patients by answering questions about their care and connecting them with the information they need to make more informed decisions about their care. Increasingly, they will interface with EHR systems and be used to book and schedule appointments. They can also help patients stay compliant by reminding them to take medications or exercise.
Dependence on Telehealth: The pandemic has accelerated healthcare innovation. 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. Home healthcare has seen a surge in the utilization of the telehealth platform in response to the pandemic. With a rise in the elderly population and the increasing costs of in-person health care, the demand for home-based health care is on the rise. People with chronic illnesses and disabilities also require home-based care.
Currently, Internet of Things (IoT)-powered virtual hospitals and telemedicine are quite popular. This trend includes both telemedicine and wearable devices connected to the global network, known as the IoT. By using connected devices to remotely monitor patients and provide communication channels for healthcare professionals, more elements of care can be delivered remotely.
Staffing Shortages: The U.S. healthcare industry has been experiencing a severe shortage of workers at every level. Per a report by Deloitte, the global healthcare sector faces a severe shortage of workers, with projections indicating a shortfall of 10 million by 2030, driven by various factors, including burnout, limited talent pipelines, demographic changes and migration rates. The demand for healthcare workers is expected to surge 29% in the next decade, requiring transformative measures to address this critical challenge.
The increasing international migration of health workers may aggravate health workforce shortfalls, especially in low-income and lower-middle-income countries. Healthcare staffing shortages lead to poor patient outcomes that can include hospital-acquired infections, patient falls and increased probabilities of death. With a 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 #155, which places it in the bottom 38% 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 outperformed its sector but underperformed the Zacks S&P 500 Composite in the past year.
The industry has gained 14.4% over this period compared with the S&P 500’s rise of 18.8% and the broader sector’s rise of 5.6%.
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 20.9X compared with the S&P 500’s 21.2X and the sector’s 23.5X.
Over the last five years, the industry has traded as high as 25.8X and as low as 17X, with the median being at 20.4X, 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 Watch Now
Quest Diagnostics: Quest Diagnostics, a well-known diagnostic information services provider, announced a global collaboration agreement with Becton Dickinson and Company (popularly known as BD) this month. The tie-up aims to develop, manufacture and commercialize flow cytometry-based companion diagnostics intended to help select the best treatment for patients with cancer and other diseases. The same month, Quest Diagnostics reported its second-quarter 2024 results, wherein it registered an uptick in its top line. Its base business revenue growth was also solid.
DGX carries a Zacks Rank #2 (Buy).
For this Secaucus, NJ-based company, the Zacks Consensus Estimate for 2024 revenues suggests growth of 2.9%. The same for earnings indicates an increase of 1.9%.
Image Source: Zacks Investment Research
The company’s return on equity (ROE) of 15.4% compares favorably with the industry’s 9%.
DaVita: DaVita, a renowned global comprehensive kidney care provider, reported its first-quarter 2024 results in May. The company registered an uptick in its overall top-line and bottom-line performances. Strength in both dialysis patient service and Other revenues during the period was also recorded. The opening of dialysis centers within the United States and acquiring centers overseas was also seen.
DVA carries a Zacks Rank #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 2024 revenues suggests growth of 4.9%. The same for earnings indicates an increase of 13.6%.
Image Source: Zacks Investment Research
The company’s ROE of 68.5% compares favorably with the industry’s 9%.
Encompass Health: Encompass Health, the owner and operator of inpatient rehabilitation hospitals in the United States, announced the opening of Encompass Health Rehabilitation Hospital of Johnston, a 50-bed inpatient rehabilitation hospital in Johnston, RI. In April, the company reported its first-quarter 2024 results, wherein it saw a robust uptick in its overall top line, primarily driven by discharge growth (including robust same-store growth).
EHC currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for Encompass Health’s 2024 earnings suggests growth of 10.4%. The same for earnings indicates an increase of 12.4%.
Image Source: Zacks Investment Research
The company’s ROE of 18% compares favorably with the industry’s 9%.
Addus HomeCare: Addus HomeCare, a key provider of home care services, announced a definitive agreement to acquire the personal care operations of Gentiva in June. Management expects the acquisition to expand the company’s personal care market coverage in seven states, including Texas and Missouri, which are new markets for Addus HomeCare. In May, it announced its first-quarter 2024 results, where it registered a solid uptick in its net service revenues. Management confirmed that its personal care revenues (accounting for 74.1% of overall revenues) improved year over year on a same-store basis, reflecting steady volume growth trends. Home health and Hospice revenues were also up year over year.
ADUS presently carries a Zacks Rank of 3.
For this Frisco, TX-based company, the Zacks Consensus Estimate for 2024 revenues suggests growth of 6.5%. The same for earnings indicates an increase of 9.2%.
Image Source: Zacks Investment Research
The company’s ROE of 10% compares favorably with the industry’s 9%.