Despite Q3 win, rally in Amedisys stock looks exaggerated

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After rising 82% from the low on March 16 of this year, at the current price of around $ 249 per share, we believe Amedisys (NASDAQ: AMED) stock, a home care and healthcare company palliative, has reached its short-term potential. AMED stock fell from $ 137 to $ 249 from the recent low against the S&P which moved 37% over the same period, with economic activity resuming as locks are gradually lifted. AMED stock is also up 385% from levels seen in early 2018, two years ago.

Part of the 385% increase over the past 2 years is justified by the growth of around 29% observed in Amedisys

AMED
‘revenues from 2017 to 2019. In addition, the company managed to increase its net margins from 48% to 7.4% on an adjusted basis, which resulted in 2x growth of its profits. Given the growth in revenues and margins, the Company’s Multiple P / E has also grown. We believe the stock should see a decline despite the recent rise and the potential weakness of a recession triggered by the Covid outbreak. Our dashboard, ‘What factors led to a 385% variation in Amedisys shares between 2017 and today?‘, has the underlying numbers.

Amedisys’ P / E multiple fell from 23x in 2017 to 37x in 2019. While the company’s P / E is now 57x, there is a potential downside risk when the current P / E is compared to levels observed in recent years, P / E of 24x at the end of 2017 and P / E of 31x in 2018.

So what is the likely trigger and when is the decline?

The global spread of the coronavirus has led to a decline in home health and palliative care services due to social distancing and restrictions on movement. That said, the company recently announced its better-than-estimated third quarter results, driven by a rebound in palliative care. Total revenue increased 10% year-over-year to $ 544.1 million, while adjusted earnings of $ 1.52 per share (excluding tax benefits) reflected 32% growth over revenue. $ 1.15 reported in the previous year’s quarter. The company has now raised its annual revenue forecast to $ 2.06 billion with mid-term adjusted earnings of $ 6.05 per share, from revenue of $ 1.96 billion and a profit of $ 4.52 in 2019. Amedisys finalized the acquisition of AseraCare in June of this year, strengthening its palliative care business. The company now offers its services in more than 500 locations in the United States, and its revenue and profits are expected to grow at a steady rate over the next several years. That said, most of these factors appear to be valued in the current inventory value of $ 249, despite the expected recovery in demand after Covid.

Actual recovery and its timing depend on wider containment of the spread of the coronavirus. Our dashboard Trends in Covid-19 cases in the United States provides insight into the spread of the pandemic in the United States and contrasts with trends in Brazil and Russia. Following the Fed’s stimulus – which set a floor on fear – the market was ready to “look through” the current period of weakness and take a longer-term view. With investors focusing their attention on the 2021 results, valuations become important in finding value. Although market sentiment may be volatile, and evidence of a rise in new cases could scare investors again. At levels of around $ 250, AMED stock is trading at 41 times its expected EPS of $ 6.05 for 2020. This compares to the P / E of 23x and 31x seen in 2017 and 2018 respectively, making that the stock appears vulnerable to downside risk.

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