The Zacks Medical - Outpatient And Home Healthcare industry comprises companies that provide ambulatory care in an outpatient setting or at home. These companies utilize 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.
Here are the three major industry themes:
- Cost Effectiveness & Favorable Demographics: The primary advantage of the 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 are also responsible for growth in outpatient care. This is the primary reason behind middle-class Americans, making up more than 62% of the total population, preferring outpatient clinic visits. The industry should also benefit from the rising geriatric population, growing prevalence of chronic diseases and reduction of burden of the healthcare sector owing to substantial decline in daily patient admissions.
- Participating in Alternative Payment Models: It seems prudent for outpatient clinics to make a shift from fee-for-service (FFS) models to alternative payment models (APM) with shared savings, shared risk, bundled payments or population-based payments. With value-based models of care becoming the future of healthcare, this shift is an ongoing parallel trend. Fee for service 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 evaluate which APM would serve as financially advantageous to its operation.
- AI’s Dominant Role: Artificial intelligence or 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. With the help of AI, hospitals will achieve better outcomes, while patients will receive more efficient and personalized care. The outpatient industry has been churning out huge profits from Electronic Health Records, Revenue Cycle Management, eLabs, ePrescriptions and many more. Notably, 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 Encouraging Prospects
The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #92, which places it in the top 37% 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.
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’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 lost 14.9% over this period against the S&P 500’s rally of 29.3% and the broader sector’s increase of 10% in the same timeframe.
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 19.65X compared with the S&P 500’s 18.67X and the sector’s 21.66X.
Over the last five years, the industry has traded as high as 20.26X and as low as 14.67X, with the median being at 17.87X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
Technological advancement has led to simplification of procedures related to outpatient services and also made them less time consuming. Participation in alternative payment models also plays a major role.
Here are three stocks that either have a Zacks Rank #1 (Strong Buy) or 2 (Buy), which investors can take a look at. These stocks are also 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 of 1.
For this Baton Rouge, LA-based company, the Zacks Consensus Estimate for 2019 revenues indicates an improvement of 18.5%. It has an average positive earnings surprise of 21.1% in the trailing four quarters.
Price and Consensus: AMED
DaVita Inc. (DVA - Free Report) : DaVita is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD). Its services include outpatient dialysis services, hospital inpatient dialysis services and ancillary services such as ESRD laboratory services and disease management services. The stock sports a Zacks Rank #1.
For this Denver, CO-based company, the Zacks Consensus Estimate for 2019 earnings suggests growth of 48.7%. It has an average positive earnings surprise of 8.1% in the trailing four quarters.
Price and Consensus: DVA
Hanger, Inc. (HNGR - Free Report) : The company delivers orthotic and prosthetic (O&P) patient care, and distributes O&P products and rehabilitative solutions. The company manages O&P networks, and provides therapeutic solutions to patients and businesses in acute, post-acute, and clinic settings in the United States. The stock carries a Zacks Rank of 2.
For this Austin, TX-based based company, the Zacks Consensus Estimate for 2019 revenues indicates an improvement of 4.7%. The consensus mark for 2019 earnings indicates an increase of 15.4%.
Price and Consensus: HNGR