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Home Healthcare: Heavily Shorted Long Opportunity

May 30, 2011 | About:

This idea was generated with an attempt to find a potentially misinformed outsized short position.

AMED: Amedisys Inc

Industry: Home Health Care

Shorts as a percentage of float: 25.70% per Yahoo (YHOO) but my calculation is slightly different at 21.80%

If Yahoo reported shares available in the float is correct at 28.89 million and NASDAQ reported shares short at 6,299,371 million on May 13, 2011, my calculation is 21.80% = 6,299,371/28,890,000.

From Feb. 15, 2011, the stock price was $35.98 and is currently $31.11 down 13.15%.

Over the past three months the health care industry is up 11.91% based on data from Morningstar versus AMED down -13.15%. It this 25% three-month spread partially driven by misinformed short sellers?

The shares shorted did increase by 16.42% or 888,541 additional shares. On Feb. 15, 2011, the shares shorted were 5,410,830 and increased to 6,299,371 on May 13, 2011. The short as a percentage of the float increased by 3.08%[888,541/28,890,000=3.08%] over this three-month period and added to reach the current Yahoo reported 25.70% shares short as a percentage of the float.

One potential negative three-month driver on the share price was the FY 2011 EPS guidance. It was below analysts’ estimates reported on Feb. 2, 2011.

Medicare cut backs are a real concern for investors. But the shorts may be pushing their luck as the stock has posted a negative 37% 52-week return. This well-managed company willing to make acquisitions may surprise and create a short-term explosive opportunity and a long-term value play at these depressed prices.

Others in the home health care industry:

Symbol, 52WeekChange, CompanyName

CHE 17.40% Chemed Corp.

LHCG -12.99% LHC Group, Inc.

KAD -76.67% Arcadia Resources In

GTIV -13.50% Gentiva Health Servi

AHCI -4.49% Allied HealthCare International

NHC 35.30% National Healthcare

AFAM -16.19% Almost Family Inc.

AMED -37.43% Amedisys Inc.

ANCI -13.30% American Caresource Holdings

PHC 170.09% PHC Inc.

AMED Fundamentals

Market Cap = 916 million

Enterprise Value = 940 million

ROIC TTM = 8.50% respectable but below the historical average

Gross margins have been compressing and will most likely continue with health care reform.

FCF/Sales TTM are still healthy at 7.80%

The three-year stock return is -15.55%

Although the GM percentage has declined, the GM total amount as a percentage of the enterprise value has increased as additional gross profits dollars are growing but at a lower margin percentage rate. Economic value is being created without a growing GM percentage or growing ROIC percentage.

Gross Profit/EV for 2010 = .55 substantially improved compared to the 2007 GP/EV = .36.

EBITDA/EV for 2010 was 16%: greater than 2008 and 2007 but less than the 18% for 2009.

TTM P/B at 1.13 improved over the P/B for 2010 at 1.2; 2009 at 1.9; 2008 at 2; and 2007 at 2.80.

EV/CF was 5.92 for 2010 and 7.51, 10.21, 14.93 and 16.77 for 2009 to 2006 respectively.

EV/Sales is currently sitting at .59.

This well-managed company with a strong balance sheet is not going bankrupt, so the 25.70% short to float ratio will be forced to buy back. This coupled with continued solid financial results will move the stock higher short and long term.


Rating: 4.3/5 (11 votes)


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