Friday, November 7, 2008

Almost Family (AFAM) with a Stellar Quarter

Almost Family (AFAM) is another reader nomination in the "good charts" category - the volatility has been enormous - trading from mid $30s to low $50s in the past few weeks. Website here.

Almost Family, Inc. and its subsidiaries provide home health care services in Florida, Kentucky, Ohio, Connecticut, Massachusetts, Alabama, Indiana, Illinois, and Missouri, the United States. It operates in two segments, Visiting Nurse (VN) and Personal Care (PC).

The VN segment provides a range of Medicare-certified home health nursing services to patients in need of recuperative care, typically following a period of hospitalization or care in another type of inpatient facility.

The PC segment provides services in patients' homes on an as-needed, hourly, or live-in basis. These services include personal care, medication management, meal preparation, caregiver respite, and homemaking. It offers these services to patients, who are admitted to skilled nursing facilities for long term custodial care.

As of December 31, 2007, Almost Family operated 33 Medicare-certified home health agencies with 51 locations and 22 personal care locations.

I am actually familiar with this niche since I've been in and out of the stock of Amedisys (AMED) - a quite similar company - in the past. But I wanted to see how earnings went yesterday and they look quite promising. It appears, due to it's smaller size, Almost Family has the ability to grow faster and usually with higher growth rates comes higher multiples. This is yet another $400M type of company with a very low number of shares outstanding (8.1M) and float (7.0M) While that always poses risks if a larger institution wants to get out, it also means earnings PER share can fly upward if a company is on a growth trajectory. Which AFAM is.
  • Almost Family reported third quarter 2008 net service revenues of $58.7 million, an 84% increase from $32 million in the third quarter of 2007. Net revenues in the Visiting Nurse segment for the third quarter of 2008 were $48.6 million, a 113% increase from $22.9 million in the third quarter of 2007. The total revenue growth of $25.7 million came from a 44% organic growth rate plus $15.7 million from acquired operations. The Patient Care acquisition completed on August 1st was in the quarter for 2 months and contributed about $7.6 million in revenue. Net revenues in the Personal Care (PC) segment for the third quarter of 2008 were $10.1 million, an 11% increase from $9.1 million in the third quarter of 2007. (Visiting Nurse revenue is 80% of the current business post acquisition with a 44% organic growth rate and the remainder from the Patient Care acquisition)
  • Net income for the third quarter of 2008 increased almost 150% to $4.7 million, or $0.56 per diluted share, compared to $1.9 million, or $0.34 per diluted share, in the third quarter of 2007. The weighted average shares outstanding for purposes of calculating diluted earnings per share increased 49% between periods. (Despite a 50% increase in share count, earnings per share still were able to jump from 34 cents to 56)
Some more detail on the Patient Care acquisition
  • On August 1, 2008, Almost Family completed the acquisition of Patient Care for $45.2 million, subject to a working capital adjustment. The acquisition was previously under a definitive agreement signed on June 18, 2008. The acquisition added $47 million in annual revenues and eight locations in New Jersey, Connecticut, and Pennsylvania. Due to the transition, wind down costs and the timing of the close, the acquisition is not expected to contribute significantly to earnings in 2008 but is expected to be accretive to EPS in 2009.
They filed a shelf registration yesterday
  • Today, November 5, 2008 Almost Family expects to file with the Securities and Exchange Commission a shelf registration statement on Form S-3 which, when declared effective by the SEC, will increase the amount of capital it could raise from approximately $30 million to $150 million to provide financing flexibility for development plans.
The shelf registration gives me pause to invest at this point because if they go the full monty and do $150M worth of shares that is some mighty dilution for a $400M company. So we'll see how that goes.

Always a worry in this sector is how Medicare and Medicaid reimbursement rules will change but recent rulings seem to be favorable
  • ,,,,the new rules expanded the number of billable diagnoses from 80 to 153 and ended the practice of increasing reimbursements by a lump sum once 10 visits are made for a particular treatment. Now, therapies involving between 6 and 20 visits have suddenly become more profitable for these firms.
Almost Family is no secret among the blogging community - in the past few months alone I see on Seeking Alpha
  1. Jun 18: Almost Family - Aging Demographics Will Drive Long Term Growth
  2. Jul 13: Almost Family - A Growing Company That will Benefit from Aging Baby Boomers
  3. Aug 7: Almost Family Trading Under the Radar
  4. Aug 12: Almost Family's a Buy, with Strong Revenues and Earnings Growth
  5. Aug 13: Almost Family - A Leading All Star in a Market That Isn't Going Anywhere Fast
So instead of recreating the wheel, I will encourage anyone interested in this name to read through the multiple postings above for a better flavor of the company. Now, I always like to hear the contrary viewpoint so I was hoping for a story such as "Aug 20: Almost Family - the Overvalued Beast I'm Shorting to Zero!" since thinking through the cons is always as important as the pros.

The chart? Excellent of late; in fact I'd be hard pressed to find a better one out there.

As I've been stating one area I think should do "relatively" well in the recession is healthcare - the elasticity of demand is a bit different - much of healthcare is a "need" not a "want". Remember (as we approach the labor report) that Walmart, federal government, and healthcare are the United States' 3 growth industries.

But unlike the market which bid AFAM up on it's earnings I'd like to hear more about this shelf offering. A $40M filing (10% dilution) would be far different than say a $120M filing (30% dilution) - so this is going to create an overhang in my eyes until more data is presented. The full $150M capacity in the shelf would be nearly 40% dilution! But aside from that, we appear to have another solid niche story and one we want to have on our radar.

No position

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