We continue to help readers find some of our best ideas for consideration, and some of the companies in this article didn’t make the cut for our long-term perspective. We’re allocating resources elsewhere.
By The Valuentum Team
Altaba (AABA)
Verizon has completed its acquisition of Yahoo’s operating assets, leaving behind an investment company now named Altaba.
In June 2017, Yahoo sold its operating business to Verizon for ~$4.5 billion, leaving behind a publicly traded investment company that was renamed Altaba. Since the company’s assets are primarily equity investments, short-term debt investments, and cash, it was required to register as an investment company.
The deal with Verizon did not include Yahoo’s stakes in Alibaba and Yahoo Japan, its primary investments, or its cash. Investors can find our thoughts on Alibaba’s valuation and outlook in its 16-page report.
A massive portion of Altaba’s intrinsic value comes from its ~15% stake in Chinese e-commerce giant Alibaba, which Altaba reported had a fair value of more than $54 billion as of the end of the second quarter of 2017. It’s next largest investment is in Yahoo Japan, which was reported as having a fair value of over $8.8 billion as of the end of the second quarter of 2017.
In addition to its more than $75 billion in affiliated investments at fair value as of the third quarter of 2017, which includes positions in Gomanji Corp and Hortonworks in addition to its Alibaba and Yahoo Japan investments, Altaba holds another ~$8.1 billion in unaffiliated investments
Altaba’s unaffiliated investments consist of money market funds, corporate debt, commercial paper, agency bonds, sovereign government debt, in addition to a number of call options. The majority of its fixed-income securities are of the short-term variety
Our published fair value estimate range for Altaba’s is $51-$77 per share, with a Valuentum Buying Index rating of 6 and an Economic Castle rating of Neutral.
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Addus HomeCare (ADUS)
Addus HomeCare has a pretty impressive long-term opportunity as it serves a high utilization and high risk population.
Addus’ services include personal care and assistance with activities of daily living, and adult day care. Its consumers are individuals with special needs who are at risk of hospitalization such as the elderly, chronically ill and disabled. The company was founded in 1979 and is based in Illinois.
Addus serves a high utilization and high risk population, or the 5% of the population that consume 50% of healthcare dollars. This segment of the population is now living longer than ever before, meaning they need care for longer.
Addus has a pretty impressive long-term opportunity. Medicaid expenditures for home and community based services are over $45 billion annually, and the segment represents the fastest growing within the homecare market. The US population of persons aged 65 and older is expected to double by 2050.
It is important for investors to note that the firm’s revenue is tied to Medicaid funded and waiver programs. In 2016, for example, just over 70% of its net service revenues from continuing operations were derived from agreements paid for by state and local government agencies. More than half of revenue is generated in the fiscally-troubled state of Illinois.
Barriers to entry in the home and community based services industry are limited, with over 33,000 homecare and hospice agencies in the US alone. Heightened competition could pressure performance.
Our published fair value estimate range for Addus HomeCare’s is $23-$38 per share, with a Valuentum Buying Index rating of 7 and an Economic Castle rating of Attractive.
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Almost Family (AFAM)
Almost Family has agreed to a merger of equals with LHC Group. Our new fair value estimate approximates the deal price in which shareholders will receive 0.9150 LHC Group shares per share of Almost Family owned.
Almost Family is a leading provider of home health nursing, rehabilitation and personal care services. Its goal is to promote independence, allowing seniors to age in place for as long as possible. The company has ~330 branches in 26 states. It was founded in 1976 and is based in Louisville, Kentucky.
The home healthcare industry is evolving from post-hospital stay to serve a broader category of patients. One of the company’s goals is to improve ‘pre-acute’ care to avoid unnecessary hospitalizations for patients. Hospital inpatient stays are down ~4% over the past 5 years.
Almost Family has agreed to a merger of equals with LHC Group. Shareholders will receive 0.9150 shares of LHC Group for each Almost Family share owned. The combined company will be a leader in in-home healthcare and should experience a higher growth rate than the standalone entities. The deal is expected to close in the first half of 2018 and is expected to bring pre-tax annual cost synergies of $25 million.
Almost Family is focused on bending the cost curve for post-acute service. Home health care is about one-tenth the cost per day of similar care in a hospital. This will also significantly lower costs to Medicare programs and will help prevent mild aggravations from turning into serious situations.
The visiting nurse industry is highly competitive and fragmented. Competitors include larger publicly held companies such as Amedisys, Gentiva Health Services, and LHC Group, and numerous privately-held multi-site home care companies.
Our published fair value estimate range for Almost Family’s is $44-$80 per share, with a Valuentum Buying Index rating of 3 and an Economic Castle rating of Attractive.
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Amedisys (AMED)
Amedisys’ scale is an important consideration in the highly fragmented home healthcare and hospice space.
Amedisys is a leading home health and hospice care company focused on bringing home the continuum of care. The firm delivers personalized home health and hospice care to thousands of patients and their families, in the comfort of their own homes. Amedisys was founded in 1982 and is headquartered in Baton Rouge, Louisiana.
Amedisys has a number of positive long-term trends backing expansion opportunities, including compelling demographics, patient preference for at home treatments, low cost of care delivery, and increased payor and hospital focus on cost.
Recent acquisition agreements have made (will make) Amedisys one of only two publicly-traded, pureplay home health and hospice companies with meaningful scale. The group remains highly fragmented, and the combined market share of the top five operators is less than 20%. Amedisys expects organic and inorganic growth in all three of its business lines in 2018.
The Centers for Medicare & Medicaid Services updated its proposed policies for 2018, which included a 0.4% decrease in payments to home health agencies. This brings the potential for lower than previously expected top- and bottom-line growth, and regulatory and other uncertainties continue to run rampant in the health-care space.
Approximately 65% of Amedisys’ revenue is generated from its Home-Health – Medicare segment. The firm is expecting home health expenditures to grow at a 4.4% CAGR through 2021, while Hospice expenditures are expected to advance at a 5.2% CAGR
Our published fair value estimate range for Amedisys’ is $39-$59 per share, with a Valuentum Buying Index rating of 4 and an Economic Castle rating of Very Attractive.
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Arena Pharma (ARNA)
Arena recently announced positive results from a Phase 2 clinical trial assessing etrasimod (a treatment for ulcerative colitis). We’ve raised our fair value estimate, but a degree of uncertainty still surrounds the drug.
Arena is a biopharmaceutical company that is losing money hand over fist. We demand a very large margin of safety before we would ever consider investing in this speculative biotech company. Though we recognize valuation upside potential exists, significant downside risk remains. Investing in Arena is like buying a lotto ticket.
The FDA’s approval of anti-obesity drug BELVIQ was a significant milestone for the company, but the firm recently amended its marketing and supply agreement with Eisai, giving Eisai global commercialization rights. Arena will continue to manufacture BELVIQ and will receive royalties.
Arena announced positive results from a Phase 2 clinical trial for etrasimod (treatment for ulcerative colitis). Ralinepag, a new novel treatment for Pulmonary Arterial Hypertension could disrupt the market if Phase 2 results can be duplicated in a larger population. We’ve hiked our fair value estimate, but investors should note the size of our fair value range.
BELVIQ’s pricing appears to be capped, and Arena’s agreement with Eisai resulted in a material drop in sales as the firm focuses on its clinical-stage pipeline. Look for the company to tap the equity and debt markets for new capital as it continues to lose money hand over fist.
Our published fair value estimate range for Arena Pharma’s is $5-$37 per share, with a Valuentum Buying Index rating of 4 and an Economic Castle rating of Unattractive.
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Belmond (BEL)
Occupancy rates in Belmond’s North America and Europe segments significantly outpace that of its Rest of World segment.
Belmond, formerly called Orient-Express, is a luxury hotel company with exposure to both mature and emerging national economies. It has properties in Italy, Spain, Portugal, UK, Russia, and across North America, South America, Africa, and Asia. The company was founded in 1971 and is based in Bermuda.
The company launched its new singular brand, Belmond, to connect its destinations, offering a strategic opportunity to expand its presence in the luxury hotel market. The brand architecture balances the new name with established icons.
Belmond offers unique luxury travel experiences at Mount Nelson Hotel (Cape Town), Hotel Splendido (Portofino), Royal Scotsman (Edinburgh), Copacabana Palace (Rio de Janerio), El Encanto (Santa Barbara), and Orcaella (Chindwin River). We think the Belmond brand will increase awareness for existing guests and stimulate cross-visitation and repeat business.
Reducing net debt has been a key priority for Belmond during the past few years. More reasonable leverage will enable the firm to access the corporate debt markets on more favorable terms. The company has simplified its capital structure and extended maturities, but we still don’t like its debt load.
Occupancy rates at Belmond have risen above 60% in recent quarters. Though this rate has steadily improved from 50% in 2009, it is still below the pre-recession peak of 64% in 2007. Occupancy rates in its North America and Europe segments significantly outpace that of its Rest of World segment.
Our published fair value estimate range for WABCO’s is $5-$15 per share, with a Valuentum Buying Index rating of 3 and an Economic Castle rating of Unattractive.
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Chemed (CHE)
We like the growth prospects within Chemed’s higher-margin Roto-Rooter business, but the long-term prospects of its Vitas segment will be impacted by government reimbursement structure.
Chemed conducts its business operations in two segments: Vitas Healthcare provides hospice and palliative care services, while Roto-Rooter is the largest provider of plumbing and drain cleaning services in North America. The company was founded in 1970 and is headquartered in Cincinnati, Ohio.
Competition is fierce. Hospice services are largely undifferentiated, while all aspects of the sewer, drain, and pipe cleaning and plumbing repair businesses are highly competitive. The company is no slouch, however,