On Wednesday, Stephens, a financial services firm, raised the price target for Addus HomeCare (NASDAQ: NASDAQ:ADUS) to $145 from $143, while maintaining an Overweight rating on the stock. The company's long-term annual revenue growth projection of more than 10%, even with a larger revenue base, indicates a sustained emphasis on a robust merger and acquisition (M&A) pipeline.
In the third quarter of 2024, Addus HomeCare experienced a modest increase in same-store personal care services (PCS) hours, growing by 0.6% year over year. This growth was tempered by headwinds from Medicaid redeterminations, which have slowed new PCS client approvals. However, Addus anticipates a return to its target growth rate of more than 2.0% in same-store PCS hours, as states are expected to complete redeterminations by the end of the year.
On the clinical side, Addus HomeCare reported a sequential gross margin expansion of approximately 40 basis points. This improvement was attributed to a 2.9% increase in the Hospice rate, which for Addus specifically was a 3.2% rise, effective October 1, 2024. The company expects the 2025 Home Health (HH) rate update, which is a modest increase of 0.5%, to have a negligible impact due to limited exposure; HH accounted for approximately 5.9% of the company's total revenue in the third quarter of 2024.
Furthermore, the divestiture of Addus's New York operations is projected to contribute around 150 basis points of sequential gross margin expansion, totaling 190 basis points in the fourth quarter of 2024. This move is also expected to positively impact EBITDA margins by approximately 90 basis points starting in the fourth quarter of 2024.
The analyst at Stephens adjusted estimates and increased the price target to $145, up from the previous $143, while reiterating an Overweight rating on Addus HomeCare's shares. The firm's outlook reflects confidence in the company's growth strategy and operational improvements.
In other recent news, Addus HomeCare has made significant strides in enhancing its financial position and strategic growth. The company reported a 10.4% year-over-year increase in total revenue, reaching $286.9 million, and a 26.2% rise in adjusted earnings per share to $1.35 in Q2 2024. Additionally, Addus HomeCare has expanded its credit facility and extended its maturity date to 2028, providing increased liquidity and financial flexibility.
The company has also been actively pursuing strategic acquisitions, with the imminent acquisition of Gentiva expected to bolster Addus HomeCare's presence, particularly in Texas. Furthermore, the company successfully completed a secondary stock offering, raising approximately $176 million in net cash proceeds earmarked for future acquisitions.
On the analyst front, KeyBanc Capital Markets initiated coverage on Addus HomeCare with an Overweight rating, reflecting confidence in the company's growth strategy. Meanwhile, Oppenheimer maintained its Outperform rating on Addus HomeCare, increasing the company's price target to $145. TD Cowen also revised its financial outlook for Addus HomeCare, raising the price target from $128 to $137 and maintaining a Buy rating.
InvestingPro Insights
To complement the analysis provided by Stephens, recent data from InvestingPro offers additional insights into Addus HomeCare's financial performance and market position. The company's market capitalization stands at $2.22 billion, reflecting its significant presence in the home healthcare sector.
InvestingPro data shows that Addus HomeCare has maintained strong revenue growth, with a 10.15% increase over the last twelve months as of Q3 2024, aligning with the company's long-term annual revenue growth projection mentioned in the article. This growth is further supported by a healthy gross profit margin of 32.53% and an operating income margin of 9.68% for the same period.
Two relevant InvestingPro Tips highlight that Addus HomeCare operates with a moderate level of debt and that its cash flows can sufficiently cover interest payments. These factors contribute to the company's financial stability and support its ability to pursue growth opportunities, including the robust M&A pipeline mentioned in the article.
It's worth noting that Addus HomeCare's stock has shown impressive performance, with a 26.85% price total return over the past six months and a 46.38% return over the last year. This aligns with the positive outlook and increased price target provided by Stephens.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Addus HomeCare, providing a deeper understanding of the company's financial health and market position.
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