'Healthy' profits from home health

"For my latest featured recommendation, I am looking to the relative stability of the U.S. healthcare industry," says small cap growth stock expert Tom Bishop.

In his BI Research, the advisor explains, "One trend that never changes is that we are all getting older everyday; another trend is the soaring cost of staying in a hospital." To play these trends, he recommends Almost Family (NASDAQ: AFAM).

"We would all prefer to stay out of the hospital or nursing home and heal or age at home for as long as possible and be as healthy as possible.

"Indeed this is the underlying tenant of our new recommendation, Almost Family. The company is a regionally focused provider of home healthcare services. 

"It operates in three regional clusters providing visiting nurse services as well as personal care services:  Florida and Alabama; a band of states from Ohio to Missouri; and a third cluster that includes Connecticut, New Jersey and eastern Pennsylvania.  

"While Almost Family is growing via acquisition, its strategy is to acquire a foot hold in a given area and then grow it organically from there. Indeed in the most recent quarter the company grew its Visiting Nurse (VN) revenues (80% of total revenues) by 66%, with 33% (half) of that coming from organic growth.

"Nurses, therapists, medical social workers and home health aides work closely with patients and their families to design and implement an individualized treatment response to a physician-prescribed plan of care.

"The Personal Care (PC) segment, which accounts for the remaining 20% of revenues, are generally of a custodial rather than skilled nature. This business is very steady and throws off solid earnings and even some revenue growth (a respectable 9% in Q2). 

"Estimates call for 35% growth this year to the $1.88 area followed by  $2.25 in 2009.  The PE on 2009 is just 19. In Q2 revenues increased 50% to $49 million, and diluted EPS increased 43% to $0.50 despite 38% more shares figuring in.

"Looking ahead, the summer quarter is typically a little softer seasonally, so expectations for Q3 are centered around $0.44. The company does not give guidance.

"AFAM has a strong 3-year record of 40% average revenue growth, and 50% for 2008. Yet despite a big move this year, the shares still trade at only 23 times 2008 EPS.

"Almost Family has a lot of strong winds at its back -- demographics and the aging of America, Medicare’s desire to provide care in the lowest cost setting, the powerful desire for patients to be at home as long as possible while staying as healthy as possible. 

"It is worth noting that the company recently popped up 59th  on Fortunes Small Business 100 list of fastest growing small public companies. It was also added to the Russell 2000 at the end of June.  

"And while I’m at it, Zacks ranks it 1, Value Line ranks it 2 and our proprietary BI Ranking system gives it a strong 9.8 out of 10. So I am not alone in my high regard for this company which is still relatively unfollowed with just three analysts, all but one of which is at a 'strong buy'.