ADUS Stock Study (5-29-23)

I recently did a stock study on Addus Homecare Corp. (ADUS) with a closing price of $88.81.

M* writes:

     > Addus HomeCare Corp is engaged in the provision of in-home personal
     > care services. It operates through the following segments: Personal
     > care segment, which is a key revenue driver, provides nonmedical
     > assistance with activities of daily living, primarily to persons who
     > are at risk of hospitalization or institutionalization, such as the
     > elderly, chronically ill and disabled. The Hospice segment provides
     > physical, emotional and spiritual care for people who are terminally
     > ill and their families. Its Home health segment provides services
     > that are primarily medical in nature to those individuals who may
     > require assistance during an illness or after surgery.

Over the last decade, this small-size company has grown sales and EPS at annualized rates of 15.9% and 13.8%, respectively. Lines are mostly up, straight, and parallel except for EPS dip in ’15. PTPM has been up and down—leading peers but trailing the industry—with a last-5-year average of 5.6%.

Over the last decade, ROE has led peer and industry averages despite trending down from 9.8% to 7.5% with a last-5-year average of 7.0%. Debt-to-Capital is much lower than peer and industry averages with a last-5-year average of 21.1%. Quick Ratio is 1.6 and Interest Coverage is 7.8 per M*. Value Line rates the company B+ for Financial Strength.

I forecast long-term sales growth of 6.0% based on the following:

• CNN Business projects 5.2% YOY and 7.6% per year for ’23 and ’22-’24, respectively (based on 8 analysts).
• YF projects YOY 8.2% and 5.9% for ’23 and ’24, respectively (13 analysts).
• Zacks projects YOY 8.3% and 5.2% for ’23 and ’24, respectively (4).
• CFRA projects 8.4% YOY and 6.9% for ’23 and ’22-’24, respectively (7).
• M* offers a 2-year ACE of 7.6% per year.

I am forecasting conservatively.

I forecast long-term annualized EPS growth of 11.0% based on the following:

• CNN Business projects 15.9% YOY and 12.9% per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with 5-year annualized growth of 15.0%.
• MarketWatch projects 12.9% and 12.6% per year from ’22-’24 and ’22-’25, respectively (8 analysts).
• Nasdaq.com projects 12.5% YOY for ’24 (5 analysts).
• Seeking Alpha projects 4-year annualized growth of 12.9%.
• YF projects YOY 11.5% and 10.1% for ’23 and ’24, respectively (13), along with 5-year annualized growth of 15.0%.
• Zacks projects YOY 9.4% and 11.0% for ’23 and ’24, respectively (6), along with 5-year annualized growth of 11.8%.
• Value Line offers a 5-year annualized ACE of 11.8% (5).
• CFRA projects growth of 46.5% YOY and 27.0% for ’23 and ’22-’24, respectively (7).
• M* projects long-term annualized growth of 15.0% per year.

I am forecasting below the long-term-estimate range (mean of five: 13.9%). I am using ’22 EPS of $2.84/share as the initial value rather than Q1 ’23 EPS of $3.10 (annualized).

My Forecast High P/E is 36. Over the last 10 years, high P/E has ranged from 27.3 in ’14 to 56.7 in ’20 with a last-5-year average of 50.4. The last-5-year-average average P/E is 37.9. I am forecasting below that.

My Forecast Low P/E is 22. Over the last 10 years, low P/E has ranged from 7.0 in ’13 to 32.0 in ’19 with a last-5-year average of 25.4. I am forecasting just below the median (22.4).

My Low Stock Price Forecast (LSPF) is the default value of $62.50 (based on initial EPS of $2.84/share). This is 29.6% less than the previous close and 8.9% less than the ’22 low.

These inputs land ADUS in the BUY zone with an U/D ratio of 3.2. Total Annualized Return (TAR) is 14.2%.

PAR (using Forecast Average—not High—P/E) is 9.3%, which is less than I seek for a small-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 158 studies over the past 90 days (my study and 52 outliers excluded), averages for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 9.7%, 13.0%, 39.2, and 24.9, respectively. I am lower across the board.

MS high and low EPS are $5.40/share and $2.85/share in contrast to my $4.79 and $2.84. My high EPS is probably lower due to a lower growth rate.

MS LSPF of $70.70 is consistent with the $2.85 * 24.9 = $70.97 default value. It’s also 13.1% greater than mine, which along with my lower inputs lend support for a robust MOS behind the current study.

PEG ratio is another value check I am just starting to monitor. My forward PEG is 29 / 11 = 2.6. A generally-accepted upper limit is 1.0 – 1.5, but it’s also good to compare against the industry average [which I don’t have].

ADUS shares are a BUY under $89.