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Amedisys or Chemed: Which is a Better Investment Choice?

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The Medical sector has been benefiting from favorable consumer behavior, growing prevalence of minimally-invasive surgeries, demand for liquid biopsy tests, use of IT for ensuring quick and improved patient care along with the shift of the payment system to a value-based model.

Further, considering favorable demographics, changing market dynamics toward Artificial Intelligence (AI) & big-data applications, increased business investments, this sector has been going strong. Broadly speaking, the latest Tax Cuts and Jobs Act, which slashed corporate tax rates to 21% from the earlier 35% has also buoyed optimism among investors.

Additionally, the Senate’s decision to defer the implementation of an industry-wide excise tax, known as the Medical Device, for another couple of years has instilled confidence in investors. The tax will be put into effect on Jan 1, 2020. The bill also delays the so-called Cadillac tax, a 40% tax on employer insurance, until 2022.

Currently, the 18-company Zacks Outpatient Healthcare Industry forms an integral part of the Medical Device space and has solid prospects as is evident from its Zacks Industry Rank of #45. This places the sub industry in the top 17% of 265-plus Zacks industries. Our back-testing shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Thus, we believe that it will be advantageous for investors to pick stocks like Amedisys, Inc. (AMED - Free Report) and Chemed Corporation (CHE - Free Report) from the fundamentally-strong sub industry now. Both the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amedisys, with a market cap of $2.48 billion, is one of the leading providers of healthcare services in the United States. The company operates through three segments — Home Health, Hospice, and Personal Care.

Meanwhile, Chemed has a market cap of $5.29 billion. It  is another leading provider of hospice and palliative care services in the nation. The company operates through two segments — VITAS and Roto-Rooter.

Let us now do a comparative analysis of these stocks before making the final call.

VGM Score: Amedisys has a VGM Score of A as compared with Chemed’s B. Under the Zack Style Score system, V stands for Value, G for Growth and M for Momentum. The VGM Score is simply a weighted combination of these parameters and is a comprehensive tool that allows investors to filter through the standard scoring system and pick the winning stocks.

PEG Ratio: Amedisys has favorable price/earnings to growth (PEG) ratio of 1.37 compared with Chemed’s 3. Amedisys figure better’s the broader industry’s 1.44.

Amedisys, Inc. PEG Ratio (TTM)

Chemed Corporation PEG Ratio (TTM)

 

Earnings Growth Projections: For Amedisys 2018 earnings, the Zacks Consensus Estimate is pegged at $3.03 per share, mirroring a year-over-year rise of 37.1%. The stock has long-term expected earnings growth rate of 17.5%.

For Chemed’s 2018 earnings, the Zacks Consensus Estimate is pegged at $11.08, reflecting a year-over-year increase of 31.4%. The stock has long-term projected earnings growth rate of 10%.

Amedisys wins another round.

Leverage Ratios: Amedisys also boasts better leverage ratios when compared with Chemed and the broader industry. Amedisys has a favorable debt/equity ratio of 0.14 compared with Chemed’s 0.26 and the industry’s 0.46. Again, long-term debt/capital ratio metric at 12.1 stands in favor of Amedisys when it comes to a comparison with Chemed’s 20.7, and 54.9 of the broader industry.

Estimate Revision Trend: Amedisys’ estimate revision trend for the current year has also been impressive when compared with Chemed. In the past 60 days, five estimates moved north, with no movement in the opposite direction for Amedisys. Meanwhile, for Chemed, one estimate moved north, with no movement in the opposite direction over the same period.

Based on the detailed analysis mentioned above, we can safely conclude that Amedisys is a superior pick for your portfolio at the moment.

Interested in Outpatient Healthcare Stocks? Check These

Envision Healthcare Corporation (EVHC - Free Report) has a long-term earnings growth rate of 13%. The stock sports a Zacks Rank #2.

LHC Group (LHCG - Free Report) , a Zacks Rank #2 stock, has a long-term earnings growth rate of 18.1%.

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