Almost Family: Zacks’ Bull of the Day Play

Almost Family (AFAMSnapshot Report) is $400 million provider of home health nursing, rehabilitation and personal care services, with 90 locations in 11 states. Specializing in adult “day” health care services, the company is focused on providing alternatives for seniors and other special needs adults who wish to avoid nursing home placement.

Founded in 1976, Almost Family and its subsidiaries operate two segments: Visiting Nurse, or VN, which provides skilled nursing, and physical, occupational and speech therapy services primarily to Medicare beneficiaries; and Personal Care, or PC, which provides custodial and personal care services.

The average center provides care for over 60 guests per day, seven days a week. The centers offer a range of therapeutic and medical services designed to promote the independence of participants and provide respite to families and caregivers. On-site staff nurses administer medications and give attention to medical care, plus round-trip transportation is available to each guest.

Revenue and Earnings Trajectory

Riding the tailwinds of three primary trends, AFAM saw its revenues climb 39% in 2014 and earnings grew 42% year-over-year. The three trends have been the Affordable Care Act, an aging population with 10,000 people coming of retirement age every day, and the rising preference among seniors needing additional care to have more control and choices about that care.

Here’s a look at the growth trend of AFAM using the Zacks proprietary Price & Consensus chart which plots changes in annual earnings estimates against the stock price…

AFAM is a Zacks #1 Rank because analysts have been bumping up EPS estimates for 2016 with the consensus climbing from $2.39 to $2.48 in the past 90 days, representing 17% growth. This is on top of 17% EPS growth for 2015, which we should get confirmation of later this month when the company reports their Q4 2105 results.

The market for home health and hospice is essentially fragmented with a number of small local providers and few barriers to entry. From this perspective, Almost Family faces competition from local private, public and hospital-owned health care providers. Also, reimbursement rate cuts arising out of Medicare reforms pose challenges to the company.

This probably explains the poor stock performance since its all-time highs last summer. But if management keeps delivering growth for this small-cap trading at just 15X forward in a growth industry, the primary tailwinds should resume to drive AFAM shares.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.

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