LHC Group Fishes for Big Deals After Strong Earnings

One of the nation’s largest home health and hospice providers, LHC Group Inc. (Nasdaq: LHCG), posted strong earnings in the second quarter of 2015 and is looking to grow, company leaders recently announced.

For the six months that ended June 30, LHC’s net income was $15.8 million, or $0.90 cents per diluted share, which was an increase of 55.5% compared with the same period in 2014, according to results released last Wednesday. For the second quarter alone, it reported earnings per share of $0.51, beating analyst estimates of $0.41. 

Its stock hit a 52-week high following the earnings release, reaching a peak of $43.20.

The strong results were driven in part by a year-over-year organic growth rate increase of 4.4% in the first half of the year for home health admissions. Another factor was the “ability to control and further reduce [general and administrative] cost as a percentage of revenue,” LHC Co-Founder, Chairman and CEO Keith Myers told analysts on an earnings call.

With the balance sheet strong and more “clarity” around Medicare reimbursement policies, the company is pursuing growth, Myers said. The company based in Lafayette, Louisiana, currently has four deals in confirmatory diligence, although in total they represent less than $100 million in revenue, he said.

However, the company also is in an “opportunistic” frame of mind when it comes to larger deals, with executives in regular meetings with banks to evaluate the opportunities, Myers said. These larger deals would be in the core home health, hospice and home-based services areas.

The provider believes it has flexibility in terms of how these transactions could be financed, including through taking on debt.

“For the right large opportunity … we would be comfortable levering the company up to the in the mid-3s, maybe a little bit higher,” he said. 

Other members of the C-Suite echoed that approach.

“That’s exactly right, with the stable earnings of the company, the clean balance sheet, there is a variety of financing options including today our current commercial bank,” said Executive Vice President, Treasurer and CFO Dionne Viator. “We have options with institutional investors and then back to the market so at this point I feel like with the opportunities are the right opportunity, we have a variety of ways to finance that and not limiting ourselves to one particular structure there.”

LHC has reviewed more than 150 acquisition opportunities so far this year and more than 50 hospital joint venture possibilities since the last earnings call, Myers said. That’s compared to fewer than 75 deals considered during the same time period a year prior. Deal activity has heated up and Myers said he expects that this will continue.

While M&A deals actually declined between the first and second quarter for the home health industry as a whole, there are reasons to believe this could be a short-term dip, according to analysts.

Written by Tim Mullaney