Addus HomeCare Corp. - Value

Addus HomeCare Corporation ( ADUS ) delivered an 11.8% earnings surprise in the third quarter, marking its third beat in the past four quarters. Earnings estimates for this provider of residence-based medical and social services for the elderly have been on the rise since the report, helping it become a Zacks #1 Rank (Strong Buy) on January 3, 2013.

With an impressive valuation, including a price-to-book (P/B) multiple of just 0.9 and a price-to-sales (P/S) ratio as low as 0.3, this stock offers a promising proposition for value investors.

Good Third Quarter

On November 1, Addus HomeCare reported third-quarter adjusted earnings per share of 19 cents, beating both the Zacks Consensus Estimate and the year-ago earnings by 11.8%. Net income (prior to severance expense of $0.3 million) was $2.0 million, compared with $1.8 million last year (before adjustment for $16.0 million for intangible assets and goodwill impairment charge).

Company-wide net service revenues moved up 2.3% year over year to $71.0 million, beating the Zacks Consensus Estimate by about 1%. Revenues from the Home & Community segment were up 6.1% to $59.6 million, while revenues for the Home Health segment were down 13.6% to $11.4 million.

Operating income for the Home & Community segment (excluding head office expenses but including amortization and depreciation charges) stood at 12.6% of sales in the reported quarter, versus 12.1% in the year-ago quarter. The enhancement in margin came on account of cost control, reduced bad debt and other factors. Adjusted operating margin for the Home Health segment was 1.8%, compared with 1.4% a year ago.

Earnings Estimates Inch Up

The Zacks Consensus Estimate for 2012 increased 1.8% in the last three months to 58 cents. For 2013, the Zacks Consensus Estimate moved up 1.5% over the same timeframe to 69 cents, reflecting a year-over-year improvement of 19.0%.

Attractive Valuation

Though shares have approximately doubled over the past year, they remain a good buy. In addition to low P/B and P/S multiples, the stock is currently trading at a forward P/E multiple of 10.6. Going by the usual indicators of a P/E multiple below 15.0, a P/B ratio under 3.0 and a P/S ratio lower than 1.0 for a value stock; Addus appears to be undervalued.

The PEG ratio for the stock is 0.71, based on a 3- to 5- year earnings per share growth rate of 15%. This metric is at a 29% discount to the generally accepted yardstick of 1.0 for a fairly valued stock.

Addus HomeCare Corporation is a provider of health care services in the residential setting. Addus caters to the needs of older citizens and those who may be dually eligible. By providing a range of home-based care, the company's services permit people to stay at home longer. Addus has a market capitalization of about $79.3 million.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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