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Health Care a Healthy Choice?


Home health care will continue to become a very viable alternative to assisted living facilities as the baby boomers continue to age.

"....two balls, no strikes on Roger Maris. Here's the windup, fastball, hit deep to right, this could be it, way back there, holy cow, he did it, sixty-one home runs! They're fighting for the ball out there. Holy Cow!"
-Phil Rizzuto

October 1, 1961. On the final day of the season, Roger Maris hit his 61st home run, breaking Babe Ruth's long standing record of 60. Rizzuto called that game as he had done so many and would go on to do so many more. Growing up a Yankee fan, "The Scooter" would become the voice I would grow up with as I watched and listened to so many games with my father and brothers. I am not ashamed to say that more than a few tears flowed listening to the radio on my way to work for a man that I never met but I always looked to as part of my family.

I guess that was the genius of Phil Rizzuto - he was every Yankee fan's grandfather or uncle.

He passed away in his sleep at an assisted-living facility in West Orange, New Jersey, and thinking about that eventually brought me to this trading question: as our population gets older and lives longer, which companies are set up best for this sea change?

Apria Healthcare (AHG), according to its website, "is the country's homecare leader in the alternate-site respiratory, home medical equipment and infusion markets, serving 1 mln patients annually." Home health care will continue to become a very viable alternative to assisted living facilities as the baby boomers continue to age.

Now just about anything can happen on the U.S. legislative and Medicare front, which will continue to create price volatility in the stock. But we are moving towards levels that will become somewhat compelling on the valuation front. Although trading around 13.25 times forward earnings, Apria Healthcare is cheaper than Amedisys (AMED), which trades close to 16 times, but it is still a bit more expensive than Lincare Holdings (LNCR), which trades around 12.50 times forward earnings.

The overall tape still concerns me, and even though AHG is significantly lower than the April 52 week high of $34.36, I still think there may be some further room on the downside. That being said, AHG already reported 2Q EPS on July 31 and although full year guidance was not great, it was far from a disaster. However, with a relatively small float and a large short interest of around 21%, the bears will use the weakness of the overall tape to push the stock lower. I think we should use any bearish price action as a buying opportunity, especially if we see AHG down around $24.00.

We all sooner or later face our own aging and mortality but there is no reason we can't find investment opportunities in the meantime. Apria Healthcare is as good a starting point as any!
No positions in stocks mentioned.

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