William Blair initiated coverage of Addus HomeCare (NASDAQ:ADUS) with an “outperform” rating, saying the company is one of the few ways for public market investors to play the in-home healthcare delivery theme, with a particular emphasis on preventative care. The stock closed at $81.46 on Aug. 8.
“Addus’ exposure to sustainable, accelerating demographic trends that drive its core personal care and fledgling hospice and home health businesses should support organic growth at least at the high end of the company’s stated 3% to 5% target for the next decade-plus,” writes analyst Matt Larew.
Positive operating cash flows in six of the last eight quarters and low total debt-to-EBITDA of only 0.8 times give Addus “flexibility to supplement its organic growth profile by consolidating a fragmented personal care market or expanding broader in-home care penetration through hospice and home health,” he added.
With $55-million in cash on the balance sheet as of the second quarter of 2019 and $142-million available on its revolver under its current credit facility, Mr. Larew said Addus has sufficient dry powder to fund M&A activity at least at the high end of management’s range of $75-million to $100-million a year.
Because of personal care’s usefulness in reducing hospital admissions and lowering overall healthcare costs, Addus has the potential to leverage its scale and corporate infrastructure to support utilization of personal care as a preventive tool, Mr. Larew said.
“Demonstrating to Medicare Advantage plans that personal care is a cost-reduction plan, not just a marketing benefit, should lead to broad market expansion in 2020 and the upside coming into focus by 2021,” he added.
