4 Reasons Raymond James Likes Addus Homecare

Addus Homecare Corporation ADUS, a provider of home care services across 25 states, should be bought even though it's already "pricey," according to Raymond James.

The Analyst

Raymond James' John Ransom initiated coverage of Addus Homecare with an Outperform rating and $75 price target.

The Thesis

At first glance, Addus Homecare's stock appears unattractive at 16.4 times 2019 estimated EBITDA and 29 times 2019 EPS, but the case for buying the stock can still be made for four reasons, Ransom said in a note.

1. Addus is among a small group of health care providers that are "part of the solution" to rising costs given a business model which provides unskilled personal care to low-income beneficiaries at home for less than $1,200 a month on average.
2. Management's guidance of 3 to 5 percent organic revenue growth, 6 percent revenue from M&A (10 percent total) implies a $35 million in annual acquired revenue. Put in perspective, the company has already added $110 million in acquired revenue and could support higher valuations moving forward.
3. Much of the stock's gain in 2018 was due to the Centers for Medicare and Medicaid Services saying personal care will be eligible within Medical Assistance programs in 2019, but this benefit is likely to only kick in the following year.
4. Addus is led by CEO Dirk Alison who boasts a successful track record of running and selling his two prior health care service companies, the analyst wrote. Since taking over the top ranks in 2016 he has "executed an impressive turnaround."

Price Action

Shares of Addus Homecare were trading around $59.55 Monday afternoon.

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