Looking for healthcare stocks that can make you rich? In 2019 these three providers of home-based healthcare services outperformed the benchmark S&P 500 index, and there are reasons to believe it could happen again in 2020 and in the long run.
Home-based medical service stocks aren't terribly popular among everyday investors, but patients and insurers that want to avoid gigantic hospital bills are over the moon with the convenience and savings these companies offer. Let's look at what made 2019 such a great year for these soaring stocks to see how they can keep it going.
|Company (Symbol)||Performance in 2019||Market Cap|
|Chemed (NYSE:CHE)||56%||$7.0 billion|
|LHC Group (NASDAQ:LHCG)||46%||$4.3 billion|
|Amedisys (NASDAQ:AMED)||42%||$5.4 billion|
1. Chemed: Home hospice care and plumbing
This company has two successful operating segments that don't exactly complement each other, but they do provide steadily growing cash flows. Vitas is the largest provider of hospice and palliative care services in the U.S. and Roto-Rooter is the largest provider of plumbing and drain-cleaning services in North America.
From 2003, when Chemed acquired Vitas, through 2018, total adjusted earnings per share rose at an impressive 25.4% annual growth rate. Vitas employs 4,800 nurses who provide around 7% of all hospice services performed in the U.S. That made Vitas the largest hospice service provider and suggests there is a lot more room to grow in this highly fragmented space.
2. LHC Group: Home health and hospice services
This is one of Chemed's larger competitors in the hospice service space, but the number of hospice patients served by Chemed is more than four times higher than LHC Group. In 2018, LHC Group became a leading provider of home health services by merging with Almost Family.
Now LHC employs 32,000 employees operating out of locations across 36 states. By the numbers, the merger has been a success and positioned LHC to keep growing for years to come.
At the end of September, total debt on LHC's balance sheet was just $232 million, which works out to a little less than the company thinks it earned in 2019 before interest, taxes, depreciation, and amortization. That's significantly less debt as a proportion of earnings than the company reported a year earlier.
The home health industry is still highly fragmented and LHC Group has everything it needs to keep growing at a rapid pace. In addition to a solid balance sheet, adjusted free cash flow reached $109 million during the first nine months of 2019.
3. Amedisys: Raising expectations
Amedisys recently expanded its hospice care operations to 146 centers in 33 states. The company's home health segment is even larger, and combined with a smattering of personal care centers, the company operates 470 care centers in 38 states.
Amedisys has been growing by acquisition and organically. Same-location admissions across all three segments are on the rise.
The company has integrated new operations quicker than expected in 2019. It has raised expectations for adjusted earnings twice in 2019 from a range between $3.98 and $4.09 per share to between $4.32 and $4.39 per share.
Take your pick
At recent prices, none of these home care stocks are exactly cheap. Chemed's shares trade at around 28 times earnings expectations, and it's the least pricey one here. At 34 times earnings expectations, Amedisys stock has the most success baked into its price at the moment, but it's also predicting some impressive earnings growth over the next couple of years.
Investors who buy shares of any of these home care giants can rest easy knowing the popularity of home-based healthcare services isn't about to slow down. The 65-years-and-older population in the U.S. is expected to double by 2060 to a whopping 95 million. Treatment of chronic conditions that affect a majority of this demographic should drive enough demand to give all three of these stocks a good chance to provide market-thumping gains in the years ahead.