Home Healthcare: Heavily Shorted long Opportunity

This idea was generated with an attempt to find a potentially misinformed outsized short position.

AMED: Amedisys Inc

Industry: Home Health Care

Shorts as a percentage of float: 25.70% per Yahoo but my calculation is slightly different at 21.80%

If the Yahoo reported shares in the float is correct at 28.89 million and NASDAQ reported shares short at 6,299,371 million on 05/13/2011, my calculation is 21.80% = 6,299,371/28,890,000

From 02/15/2011 the stock price was 35.98 and is currently 31.11 down 13.15%.

Over the past 3 months the health care industry is up 11.91% based on data from Morningstar versus AMED down -13.15%. This 25% 3 month spread may be partially driven by misinformed short sellers?

The shares shorted did increase by 16.42% or 888,541 additional shares shorted. On 02/15/2011 the shares shorted were 5,410,830 and increased to 6,299,371 on 05/13/2011. The short as a percentage of the float increased by 3.08%[888,541/28,890,000=3.08%] over this 3 month period and added to reach the currrent 25.70% shares short as a percentage of the float.

One potential negative 3 month driver on the share price was the FY 2011 EPS guidance. It was below analysts estimates reported on 02/22/11.

Medicare cut backs is a real concern for investors. But the shorts may be pushing their luck as the stock has posted a negative -37% 52 week return. This well managed company willing to make acquisitions may surprise and create a short term explosive opportunity and a long term value play at these depressed prices.

Others in the home health care industry:

Symbol,  52WeekChange, CompanyName
CHE 17.40% Chemed Corp.
LHCG -12.99% LHC Group, Inc.
KAD -76.67% Arcadia Resources In
GTIV -13.50% Gentiva Health Servi
AHCI -4.49% Allied HealthCare International
NHC 35.30% National Healthcare
AFAM -16.19% Almost Family Inc.
AMED -37.43% Amedisys Inc.
ANCI -13.30% American Caresource Holdings
PHC 170.09% PHC Inc.

AMED Fundamentals

Market Cap = 916 million
Enterprise Value = 940 million

ROIC TTM = 8.50% repectable but below the historical averge
Gross margins have been compressing and will most likely continue with health care reform.
FCF/Sales TTM is still healthy at 7.80%

The 3 year stock return is negative -15.55%

Although the GM % has declined the GM total amount and as a percentage of the enterprise value has increased as additional gross profits dollars are growing but at a lower margin % rate. So economic value is being created without a growing GM% or growing ROIC%.

GP/EV for 2010 = .55 substantially improved compared to the 2007 GP/EV = .36

EBITDA/EV for 2010 was 16%:  greater than 2008 and 2007 but less than the 18% for 2009.

TTM P/B at 1.13 improved over the P/B for 2010 @1.2;  2009 @1.9; 2008 @ 2; and 2007 @ 2.80

EV/CF was 5.92 for 2010 and 7.51, 10.21, 14.93 and 16.77 for 2009 to 2006 respectively
EV/Sales also posted improvements currently sitting at EV/Sales = .59

This well managed company with a strong balance sheet is not going bankrupt. So the 25.70% short to float ratio  will be forced to buy back and this coupled with continued solid financial results will move the stock higher short and long term.