ADUS Stock Study (8-28-23)

Posted by Mark on October 29, 2023 at 06:12 | Last modified: August 28, 2023 13:10

I recently did a stock study on Addus Homecare Corp. (ADUS) with a closing price of $89.37. The original study is here.

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 past 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 an EPS dip in ’15. PTPM leads peers but trails the industry while ranging from 4.0% in ’16 to 7.0% in ’21 with a last-5-year mean of 5.6%.

Also over the past decade, ROE leads peer and industry averages despite trending down from 9.8% to 7.5% with a last-5-year mean of 7.0%. Debt-to-Capital is much lower than peer and industry averages with a last-5-year mean of 21.1%.

Quick Ratio is 1.4 and Interest Coverage is 8.0 per M*. Value Line rates the company B+ for Financial Strength.

With regard to sales growth:

• CNN Business projects 5.2% YOY and 7.6% per year for ’23 and ’22-’24, respectively (based on 6 analysts).
• YF projects YOY 10.5% and 7.7% for ’23 and ’24, respectively (7 analysts).
• Zacks projects YOY 10.4% and 6.8% for ’23 and ’24, respectively (4).
• CFRA projects 10.6% YOY and 9.0% for ’23 and ’22-’24, respectively (7).
• M* offers a 2-year ACE of 9.5% per year.

I am forecasting toward the lower end of the range at 6.0% per year.

With regard to EPS growth:

• CNN Business projects 11.5% YOY and 10.9% per year for ’23 and ’22-’24, respectively (based on 6 analysts), along with 5-year annualized growth of 12.6%.
• MarketWatch projects 15.8% and 14.5% per year from ’22-’24 and ’22-’25, respectively (7 analysts).
• Nasdaq.com projects 11.0% YOY and 12.5% per year for ’24 and ’23-’25 [5, 5, and 1 analyst(s) for ’23, ’24, and ’25].
• Seeking Alpha projects 4-year annualized growth of 12.6%.
• YF projects YOY 14.5% and 10.8% for ’23 and ’24, respectively (7), along with 5-year annualized growth of 15.0%.
• Zacks projects YOY 12.9% and 9.7% for ’23 and ’24, respectively (6), along with 5-year annualized growth of 12.6%.
• Value Line offers a 2.5-year annualized ACE of 16.4% (4).
• CFRA projects YOY growth of 51.1% and 10.0% for ’23 and ’24, respectively (7).
• M* projects long-term annualized growth of 15.0% per year.

MarketWatch’s 2024 estimate is the same as the ’25 estimate from Nasdaq.com: $4.73/share. This is puzzling given an estimated EPS growth rate around 10%. This may be totally random as the latter estimate is just one analyst. It probably catches my eye because I’ve never noticed any relationship between MarketWatch and Nasdaq.com estimates (unlike CNN Business and MarketWatch, which are both supplied by FactSet).

I am forecasting below the long-term-estimate range (mean of five: 13.6%) at 11.0% per year. I am using ’22 EPS of $2.84/share as the initial value rather than ’23 Q2 EPS of $3.31 (annualized).

My Forecast High P/E is 34.0. Over the past decade, high P/E ranges from 27.3 in ’14 to 56.7 in ’20 with a last-5-year mean of 50.4. The last-5-year-mean average P/E is 37.9. I am forecasting below the latter and toward the bottom of the range [only ’14 and ’13 (32.1) are lower].

My Forecast Low P/E is 22.0. Over the past decade, low P/E trends up from 7.0 in ’13 to 24.1 in ’22 with a last-5-year mean (median) of 25.4 (22.4). I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) of $62.50 is default based on $2.84/share EPS. This is 30.1% less than the previous close and 8.9% less than the 2022 low.

These inputs land ADUS in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 12.7%.

PAR (using Forecast Average—not High—P/E) is 8.4%, 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 219 studies (my study and 61 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 9.0%, 12.2%, 37.9, and 24.3. I am lower across the board. Value Line’s projected average annual P/E of 22.2 is less than MS (31.1) and mine (28.0). This comparison may be invalid with Value Line projecting to ’24/’25 rather than five years hence.

MS high / low EPS are $5.60 / $3.10 vs. my $4.79 / $2.84 (per share). My high EPS is lower due to a lower EPS growth rate.

MS LSPF of $70.00 implies a Forecast Low P/E of 22.6: less than the above-stated 24.3. MS LSPF is 7.1% less than the default $3.10/share * 24.3 = $75.33, which results in more conservative zoning. MS LSPF remains 12.0% greater than mine.

My TAR (over 15.0% preferred) is less than the 18.2% from MS.

MOS backing the current study seems robust.

I track a few different valuation metrics. PEG per Zacks and my projected P/E are 1.7 and 2.2, respectively: both slightly overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is undervalued at 0.7.

ADUS is a BUY under $87. With a forecast high price of $162.70, my TAR criterion should be satisfied under $81/share.