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Amedisys Stock Up on Solid Earnings, Reimbursement Woes Stay

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On Mar 02, we issued an updated research report on renowned home health and hospice services provider Amedisys Inc. (AMED - Free Report) . The stock currently carries a Zacks Rank #3 (Hold).

Over the last three months, Amedisys consistently traded above the Zacks categorized Medical - Outpatient and Home Healthcare industry. The situation improved further with the company’s stellar earnings performance in the fourth-quarter 2016. Per the last trading price, overall the company gained 30.94%, much ahead of the 5.27% gain of the broader industry over this period.

Despite a dull top line show, the market is positive on its strong Home Health division’s performance where the company witnessed solid organic growth in Medicare and non-Medicare revenues.

We note that, the home health industry is poised for tremendous growth in the long term, driven by the aging U.S. population, patients’ desire for independence, and home health as a cheaper care modality. The company should continue to benefit from the aging demographics of the U.S. population and the need for higher acuity patients to be taken care of in a home nursing environment. 

In addition, with continued pressure on the U.S. healthcare system, we believe operators such as Amedisys will continue to benefit from increased volume shift from higher-cost institutional settings to a lower-cost environment such as home health.

We are also upbeat about the company’s initiatives for strategically fit merger and acquisition activities. The company’s strong cash balance position further bolsters our confidence in the stock. Over the last one year, the company made three strategic acquisitions, Associated HomeCare in Mar 2016, followed by Professional Profiles late in the year, and finally Home Staff in Jan 2017. Closing the Home Staff acquisition with Fallon Health, made Amedisys the largest provider of PACE (Program for All Inclusive Care) for the elderly in Massachusetts. Currently, management expects the company to have enough cash balance left to make plenty of such acquisitions in the future.

However, on the flip side, we are concerned about Amedisys’ intensifying competition from local privately and publicly-owned and hospital-owned health care providers. Since the market for home health and hospice is fragmented with a number of small local providers, there are only a few barriers to entry in this market. The competition is based on the availability of personnel, the quality of services, expertise of visiting staff and the price of services.

Also CMS’ recent proposed rule for Home Health in 2017 includes a shift toward a budget neutral plan for reimbursement which may affect the company’s growth adversely.

Key Picks

Some better-ranked stocks in the medical product sector include Glaukos Corporation (GKOS - Free Report) , Cardiovascular Systems and Neogen Corp. (NEOG - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Glaukos gained over 100% in the last one year compared with the S&P 500’s gain of 20.2%. The company has a stellar four-quarter average earnings surprise of over 100%.

Cardiovascular Systems surged over 100% in the last one year compared with the S&P 500. It has a four-quarter average earnings surprise of 67.8%.

Neogen gained 27.9% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth rate of 16.7% for the next five years compared with the industry average of 15.2%.

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