Amedisys (AMED): J. Royden Ward’s top stock for 2010

By Steven Halpern, TheStockAdvisors.com | Jan 06, 2010 | comment

J. Royden Ward is the editor of Cabot Benjamin Graham Value Letter, a newsletter that -- as its name suggests -- focuses on stocks that meet the criteria of legendary value investor Ben Graham.

For his top pick for 2010, he the advisor looks to Amedisys (NASDAQ: AMED), a provider of home health care and hospice services.

"Despite government efforts, health care costs continue to rise to unacceptable levels in the U.S.

"But there are alternatives that offer dependable care at substantially less cost to patients and to taxpayers, and I believe one option, home health care, will become an important alternative to lengthy hospital and nursing home stays. 

"My top stock for 2010 is the largest company in the home health care sector whose impeccable reputation for delivering reliable care is providing the company with exciting new opportunities for exceptional growth.

"Amedisys is a leading provider of home health care and hospice services. The company typically provides skilled nurses or nurse assistants who coordinate health care with the patient’s family and physician.

"The company operates more than 500 Medicare-certified home health agencies and 50 hospice agencies in 37 U.S. states and Puerto Rico.

"The company’s home health care services provide assistance to patients recovering from illness, injury or surgery in their own homes. Additional services include maintaining and improving patients’ quality of life through physical, speech or other therapy.

"For example, the company educates patients on how to avoid falls in the home, which are the leading causes of patients re-entering hospitals. Approximately 87% of Amedisys’ home health care services are covered by Medicare. 

"Amedisys also offers hospice home care services for terminally ill patients. Hospice services are designed to provide basic care and comfort to patients and support to family members.

"Compared to hospitals and nursing homes, Amedisys can save patients, families and the health care system huge amounts of money. Health care delivered in patients’ homes is far less expensive than health services delivered in hospitals and nursing homes.

"The home health care industry is fragmented with 9,200 home health care agencies and 3,000 hospice agencies operating in the U.S. Amedisys is actively acquiring smaller home health care agencies that fit the company’s acquisition plans, as well as opening their own new agencies at a rapid pace. 

"The growth opportunities in the home health care industry are obvious. The growing numbers of elderly, and the need for less expensive health care including home health care, will likely create industry growth of 15 to 20% during the next several years and decades. 

"Revenues climbed 39% and EPS soared 57% during the 12 months ended 9/30/09. Analysts are forecasting 14% sales growth and 11% EPS growth for the next 12 months, but we believe Amedisys will produce sales and earnings growth exceeding 20%.

"We base our growth projections on the company’s aggressive acquisition program along with its ability to open new agencies efficiently and profitably. AMED shares are clearly undervalued at 8.3 times our EPS estimate for the next 12-month period."

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