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Aveanna Stock Rallies 110% in 3 Months: Is It Still Worth Buying?
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Shares of Aveanna Healthcare (AVAH - Free Report) have rallied 110% in the past three months, breaking out from an eight-month-long consolidation in July. The long period of consolidation gives rise to a potential significant run-up in the share price of AVAH going forward.
However, more than a 100% rally in just three months raises concern for a pullback. In this article, we will discuss the factors that should support the potential bull run. We will also focus on whether investors should buy the stock at present.
Over the same timeframe, shares of AVGO peers like DaVita (DVA - Free Report) and Quest Diagnostics (DGX - Free Report) have risen 5.5% and 11.1%, respectively.
Image Source: Zacks Investment Research
The company reported second-quarter results earlier this month. Its revenues grew 7% on a year-over-year basis. The adjusted EBITDA was up more than 27% from the year-ago period’s level. This improvement in the top and bottom lines was driven by better payer rate environment as AVAH continues to focus on payers willing to make use of enhanced reimbursement rates and value-based agreements. The company’s cost reduction efforts drove strong growth in adjusted EBITDA.
The improving performance is likely to continue in the upcoming quarters on the back of AVAH’s several rate improvement initiatives as well as a recovering labor market. However, uncertainty regarding labor and inflationary headwinds may impede share price growth.
Promising Fundamentals for the AVAH Stock
Aveanna’s strong growth prospect is driven by its favorable Zacks Rank #2 (Buy). AVAH also has a favorable Zacks Style Score of A. A company with a Zacks Rank #1 or #2, coupled with a Style Score, or VGM Score of A or B, implies that its stock will outperform the market in the next one to three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AVAH stock is also trading above its 50-day and 200-day moving averages, demonstrating strength in the uptrend.
AVAH Stock Trades Above 50-Day and 200-Day Average
Image Source: Zacks Investment Research
Aveanna generates revenues from three business segments — Private Duty Services, Home Health & Hospice and Medical Solutions. During the first half of 2024, the company reported growth across all its segments. The company provides a cost-effective patient-preferred and clinically sophisticated solution to patients. It also offers the right solution for payers, referral sources and government partners.
Demand for AVAH solutions continues to be strong as both state and federal governments and managed care organizations are looking for opportunities to expand capacity for home and community-based care. The growing demand for AVAH’s solutions is likely to continue with the rise in the aging population.
The company’s primary concern remains the reimbursement rates, which primarily drive its top line. Moreover, a higher reimbursement rate helps the company to offer attractive labor wages to retain caregivers. AVAH remains focused on driving the reimbursement rates higher, which should support its business growth. It continued to progress on several rate improvement initiatives, with both government and preferred payers achieving rate hikes in 12 states.
Aveanna is lobbying to get a rate hike in California, one of AVAH’s key markets. The company expects its adjusted EBITDA to ramp up in the rest of 2024 as most of its annual rate increases will typically become effective in the second half.
During the second-quarter earnings call, AVAH raised its revenue guidance from $1.97 billion to $1.985 billion. The company expects its adjusted EBITDA to cross $158 million, up from the previous guidance of more than $150 million. The Zacks Consensus Estimate for 2024 loss is currently pegged at 5 cents per share, indicating a 54.6% year-over-year improvement. The estimate improved 28.6% over the past 30 days.
Image Source: Zacks Investment Research
Aveanna’s preferred payer strategy is also gaining momentum and allowing the company to invest in caregiver wages and recruitment efforts to accelerate the hiring and staffing of nurses for patients. AVAH added five preferred pay agreements in 2024 for its Private Duty Services segment.
The preferred payer accounts generated 45% of the company’s total Medicare-covered volumes during the second quarter, representing a sequential improvement of 500-basis points. An improving payer-mix should boost top-line growth as well as help the company to offset labor shortages with higher wages and expanding caregiving capacity.
AVAH is also gaining from a better payer-mix for its Home Health & Hospice, with a focus on payers willing to reimburse on an episodic basis. The company signed two episodic agreements in the second quarter, taking the year-to-date figure to four. This episodic focus has accelerated its margin expansion and improved clinical outcomes.
Although AVAH is gaining from the focus on reimbursement rate hikes and preferred or episodic payers, the challenging labor and inflationary environment might pose a challenge for the company.
The AVAH stock is currently trading at a discount when compared to the Medical – Outpatient and Home Healthcare industry. Its forward 12-month P/S of 0.51X is significantly lower than the industry’s 2.88 at this moment.
This is also reflected in its favorable Value score of A, implying the availability of the stock at an attractive valuation even after its significant rally in the past three months.
Image Source: Zacks Investment Research
Should You Invest in Aveanna Right Now?
Aveanna represents an attractive opportunity for investors backed by strong fundamentals. Moreover, the cheap valuation of the company offers a significant upside potential going forward. The rising reimbursement rates and increasing high-paying payer-mix is paving the way for improving top and bottom-lines in the future. Apart from a favorable Value score, the company’s Growth and Momentum score of C implies a moderate pace for the uptrend.
We expect current shareholders to continue to gain from further upside; new investors are also likely to reap the benefits.
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Aveanna Stock Rallies 110% in 3 Months: Is It Still Worth Buying?
Shares of Aveanna Healthcare (AVAH - Free Report) have rallied 110% in the past three months, breaking out from an eight-month-long consolidation in July. The long period of consolidation gives rise to a potential significant run-up in the share price of AVAH going forward.
However, more than a 100% rally in just three months raises concern for a pullback. In this article, we will discuss the factors that should support the potential bull run. We will also focus on whether investors should buy the stock at present.
AVAH’s shares have outperformed the Zacks Medical – Outpatient and Home Healthcare industry’s growth of 2% and the broader Zacks Medical sector’s return of 1.6% in the past three months.
Over the same timeframe, shares of AVGO peers like DaVita (DVA - Free Report) and Quest Diagnostics (DGX - Free Report) have risen 5.5% and 11.1%, respectively.
Image Source: Zacks Investment Research
The company reported second-quarter results earlier this month. Its revenues grew 7% on a year-over-year basis. The adjusted EBITDA was up more than 27% from the year-ago period’s level. This improvement in the top and bottom lines was driven by better payer rate environment as AVAH continues to focus on payers willing to make use of enhanced reimbursement rates and value-based agreements. The company’s cost reduction efforts drove strong growth in adjusted EBITDA.
The improving performance is likely to continue in the upcoming quarters on the back of AVAH’s several rate improvement initiatives as well as a recovering labor market. However, uncertainty regarding labor and inflationary headwinds may impede share price growth.
Promising Fundamentals for the AVAH Stock
Aveanna’s strong growth prospect is driven by its favorable Zacks Rank #2 (Buy). AVAH also has a favorable Zacks Style Score of A. A company with a Zacks Rank #1 or #2, coupled with a Style Score, or VGM Score of A or B, implies that its stock will outperform the market in the next one to three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AVAH stock is also trading above its 50-day and 200-day moving averages, demonstrating strength in the uptrend.
AVAH Stock Trades Above 50-Day and 200-Day Average
Image Source: Zacks Investment Research
Aveanna generates revenues from three business segments — Private Duty Services, Home Health & Hospice and Medical Solutions. During the first half of 2024, the company reported growth across all its segments. The company provides a cost-effective patient-preferred and clinically sophisticated solution to patients. It also offers the right solution for payers, referral sources and government partners.
Demand for AVAH solutions continues to be strong as both state and federal governments and managed care organizations are looking for opportunities to expand capacity for home and community-based care. The growing demand for AVAH’s solutions is likely to continue with the rise in the aging population.
The company’s primary concern remains the reimbursement rates, which primarily drive its top line. Moreover, a higher reimbursement rate helps the company to offer attractive labor wages to retain caregivers. AVAH remains focused on driving the reimbursement rates higher, which should support its business growth. It continued to progress on several rate improvement initiatives, with both government and preferred payers achieving rate hikes in 12 states.
Aveanna is lobbying to get a rate hike in California, one of AVAH’s key markets. The company expects its adjusted EBITDA to ramp up in the rest of 2024 as most of its annual rate increases will typically become effective in the second half.
During the second-quarter earnings call, AVAH raised its revenue guidance from $1.97 billion to $1.985 billion. The company expects its adjusted EBITDA to cross $158 million, up from the previous guidance of more than $150 million. The Zacks Consensus Estimate for 2024 loss is currently pegged at 5 cents per share, indicating a 54.6% year-over-year improvement. The estimate improved 28.6% over the past 30 days.
Image Source: Zacks Investment Research
Aveanna’s preferred payer strategy is also gaining momentum and allowing the company to invest in caregiver wages and recruitment efforts to accelerate the hiring and staffing of nurses for patients. AVAH added five preferred pay agreements in 2024 for its Private Duty Services segment.
The preferred payer accounts generated 45% of the company’s total Medicare-covered volumes during the second quarter, representing a sequential improvement of 500-basis points. An improving payer-mix should boost top-line growth as well as help the company to offset labor shortages with higher wages and expanding caregiving capacity.
AVAH is also gaining from a better payer-mix for its Home Health & Hospice, with a focus on payers willing to reimburse on an episodic basis. The company signed two episodic agreements in the second quarter, taking the year-to-date figure to four. This episodic focus has accelerated its margin expansion and improved clinical outcomes.
Although AVAH is gaining from the focus on reimbursement rate hikes and preferred or episodic payers, the challenging labor and inflationary environment might pose a challenge for the company.
Cheap Valuation Implies AVAH Stock Growth Potential
The AVAH stock is currently trading at a discount when compared to the Medical – Outpatient and Home Healthcare industry. Its forward 12-month P/S of 0.51X is significantly lower than the industry’s 2.88 at this moment.
This is also reflected in its favorable Value score of A, implying the availability of the stock at an attractive valuation even after its significant rally in the past three months.
Image Source: Zacks Investment Research
Should You Invest in Aveanna Right Now?
Aveanna represents an attractive opportunity for investors backed by strong fundamentals. Moreover, the cheap valuation of the company offers a significant upside potential going forward. The rising reimbursement rates and increasing high-paying payer-mix is paving the way for improving top and bottom-lines in the future. Apart from a favorable Value score, the company’s Growth and Momentum score of C implies a moderate pace for the uptrend.
We expect current shareholders to continue to gain from further upside; new investors are also likely to reap the benefits.