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Why LHC Group Is Underperforming the Market This Year

By Jeremy Bowman, Jason Hall, and Vicki Hutchison – Nov 15, 2021 at 7:45AM

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COVID and other challenges spoiled the healthcare company's third-quarter earnings report.

LHC Group (LHCG -1.04%) missed the mark once again in its third-quarter earnings report as revenue fell short of estimates. The company has struggled during the pandemic as people are reluctant to use their hospice care facilities, and it's also added costs to the business.

In this episode of "Beat and Raise" recorded on Nov. 4, Fool contributors Vicki Hutchison and Jason Hall discuss LHC's earnings report and the prospects for the healthcare provider.

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Vicki Hutchison: Yeah. If you've never heard of LHC Group, it's no surprise, it's only recommended in one obscure portfolio. It's been running for about four and a half years and when that portfolio ends, it probably will leave them Motley Fool universe, but it's been a good stock to be invested in. LHC Group is in an area that you'd actually expect to do well. They do home health, hospice, acute care hospitals, skilled nursing, all of those things that lend themselves to an aging demographic. They have a whole bunch of these locations across the country.

They didn't have a super good earnings report. They missed their revenue. They barely met earnings per share but they did raise their guidance. Really, the reason they were able to raise their guidance was because they have spent $300 million on acquisitions this year. Realistically, their raising guidance is because they're going to start getting more money from these new facilities. They're mostly hospice care facilities that seems to be the growth area for them. They have a total of 917 locations across 37 states and the District of Columbia. They focus on non-GAAP. Their GAAP earnings per share actually look better to me. But they had some closures due to the hurricane last year and then COVID has provided a plethora of different challenges that cost money. They use cash this year buying their acquisition so their cash forward it is not very good. If you look, the price chart reflects that. It's down 35 percent over the last year with the market up almost 41 percent. This has not been a good one year earnings. Like I said, it has been good for investors that have held it for four more years, but not so much the last year.

Jason Hall: Yeah. You think about real estate typically is the safer area to be. But when you start getting into the healthcare aspects of these kinds of businesses, the regulations with so many of the things they deal with bringing visitors, and patients, and care, and all that thing. It's definitely been a tough environment. Then you add in the economics of everything that we've gone through. It's been a challenging space. I do see that we've got a little bit of a raise in the outlook there. Does it seem like there is some optimism that the results at least were starting to turn the corner?.

Vicki Hutchison: Yeah, they are. Hurricanes that cause closures, you can't plan for those.

Jason Hall: No.

Vicki Hutchison: You can plan for COVID but COVID hopefully will be getting better and that will make a lot of things easier for them and cut some of their expenses,.

Jason Hall: Right.

Vicki Hutchison: But their economies of scales of having 917 facilities and all of that skilled nursing that folks need going out and visiting them wherever they may be. Hospice is a really good thing.

Jason Hall: Yeah.

Vicki Hutchison: End of life, it's a really good thing.

Jason Hall: Yeah. Particularly for people who don't have end-of-life care in their own home versus in a hospital environment is a massive thing.

Vicki Hutchison owns shares of LHC Group. The Motley Fool owns shares of and recommends LHC Group. The Motley Fool has a disclosure policy.

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