**Intro**
Addus Homecare provides in-home personal care (laundry, cooking, cleaning) and in-home health care. Clients are mostly elderly, disabled, or chronically unwell. As the physical & mental health of the population declines, demand for in-home care increases. Recent data indicates that the overall health of the population is declining. Earnings release is Monday, November 4 after the closing bell.
**Health Insurance Results**
All major health insurance companies reported unexpectedly high medical utilization in quarter 3. United Health had a benefit expense ratio of 85.2% vs. 82.3% in prior year quarter. The stock dropped 8.4% after earnings. Elevance had a ratio of 89.5% vs 86.8% in prior year quarter. ELV dropped 7.1% after earnings.
The 4 major health providers (UNH, CVS, ELV, HUM) were down an average of 13.6% in October while the rest of the market was flat.
**Elderly Housing & Elderly Care Results**
On the other hand, all major elderly housing & care stocks have reported surging occupancy as the number of people unable to live independently continues to increase. Ensign (the largest nursing home operator) reported a Q3 occupancy increase of 2.8% vs prior year quarter, to reach their highest occupancy rate ever. Welltower (the largest senior living REIT) occupancy is up 3.1%.
The 6 largest Elderly housing & care providers (WELL, VTR, OHI, ENSG, PACS) are up an average of 5.3% in the month of October alone.
**ADUS analysts are not connecting the dots**
Increased medical utilization and surging elderly facility occupancy are bellwethers for ADUS but analysts do not appear to have noticed this yet. Both of these factors indicate that demand for in-home health & personal care should be high. But ADUS is down 6.5% in October on no obvious news.
When United Health was the first major health insurance provider to report bad Q3 results, hospital providers (HCA, UHS, THC) all went up, as they should have. When Welltower was the first major senior living REIT to report strong Q3 results, other elderly care stocks went up too.
Upcoming ADUS results should be positively correlated to elderly care earnings results and negatively correlated to health insurance earnings results. But that hasn’t happened yet. Analysts may be overlooking these relationships because ADUS has a relatively small market cap and ADUS is unique because it is the only publicly traded company that gets the majority of revenue from home personal care.
**Labor Situation**
Home health & personal care is labor intensive. A high demand for these services is irrelevant if a company can not find enough workers. Fortunately, the labor situation has improved drastically in the last 2 years and continues to improve. USA job opening rates have decreased to pre-pandemic levels: from 7.5% in 2022 to 4.5% today.
Addus executives confirmed that the labor situation has improved for their company. On the Q2 earnings call they said hires/day were at record highs and turnover rates were at record lows and that trend was continuing well into Q3.
**Valuation**
Normalized EPS for Q2 was $1.35 vs Normalized EPS of $1.07 in Q2 2023. So that gives earnings growth of 26.2%. Normalized trailing p/e ratio is $125.7/($1.35\*4) = 23.4.
Using earnings growth of 26.2% and p/e ratio of 23.4, we get a PEG ratio of 23.4/26.2 = 0.89. So the stock looks undervalued without even considering the factors I wrote about earlier in this post.
**Recent Wallstreetbets DD**
OHI: posted 8/24: up 10% since
LRN: posted 9/8: up 30% on earnings day short squeeze
PACS posted 9/14: up 5% since with earnings yet to come
**Position**
$33,000 of ADUS shares
None of this is financial advice