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Bull of the Day: Addus HomeCare (ADUS)

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Addus HomeCare (ADUS - Free Report) is a comprehensive provider of a broad range of social and medical services in the home. The company's services include personal care and assistance with activities of daily living, skilled nursing and rehabilitative therapies, and adult day care.

Its consumers are individuals with special needs who are at risk of hospitalization or institutionalization, such as the elderly, chronically ill and disabled. Its payor clients include federal, state and local governmental agencies, the Veterans Health Administration, commercial insurers and private individuals.

Q3 Impresses Analysts

On November 7 the company delivered a big Q3 earnings beat and reported net service revenues that grew 22.7% to $103.5 million for the quarter from $84.3 million in Q3 of 2015. Shares popped over 30% last week and analysts were eager to raise estimates.

While the earnings beat was only 10-cents, the consensus estimate for the full-year 2016 rose 22-cents from $1.05 to $1.27. And 2017 estimates rose 20% from $1.15 to $1.38.

What's encouraging about this growth picture is how quickly the company is emerging from a restructuring process where they took a $0.23 charge. Addus reported Q3 adjusted EPS of $0.39. The adjusted results excluded the $0.23 of restructuring charges, $0.02 of severance, $0.03 of stock-based compensation and a $0.04 credit for normalization of effective tax rate.

According to the company press release, "While the majority of the growth in billable hours per day was attributable to the first-quarter acquisition of South Shore, same store revenues contributed meaningfully to revenue growth for the quarter."

Dirk Allison, President and Chief Executive Officer of Addus, remarked, "We are pleased to report an outstanding third quarter for Addus. We achieved substantial growth in revenues - including same store growth of 4.1% - and in adjusted EPS. We produced strong cash flow from operations and significantly strengthened our balance sheet, due both to our increased adjusted earnings and to the pay down of the past-due Illinois non-Medicaid accounts receivable."

Analysts see cost-cutting and restructuring moves as improving the company's short-term liquidity to pursue further accretive M&A opportunities.

Company Structure

Addus operates its business through two divisions, Home & Community services and Home Health services.

The Home & Community services are social, or non-medical, in nature and include assistance with bathing, grooming, dressing, personal hygiene and medication reminders, and other activities of daily living. The Home Health services are medical in nature and include physical, occupational and speech therapy, as well as skilled nursing.

Addus currently holds approximately 300 home care contracts throughout the country. The company provides health care services to over 30,000 consumers weekly from over 120 offices located in 21 states.

Baby Boomers and HomeCare

As people are living longer and requiring more medical care, the demand for alternatives to nursing homes will only grow. What do aging people in need of extra care really want? They want to stay close to their families and avoid the isolation that can inevitably come with institutionalization.

They want familiar surroundings and freedom. And they also want personal attention for their care needs.

According to the website

Most elders would prefer to stay in their own homes, where they know their neighbors and can associate memories with each piece of furniture and object around them, rather than move to an institution as they age.

Things that can make "aging in place" -- the current term for staying in one's own home as one ages -- problematic are tasks such as cooking, cleaning, toileting, shopping, doing laundry, and driving, as well as falls, which for frail elders could initiate a downward spiral.

These are the social drivers of a strong business trend for Addus HomeCare. Accordingly, home care is a $50 billion market within the overall long-term care market of over $300 billion, including assisted living, nursing, and hospice.

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