With track records of revenue growth and relatively low valuations compared to other companies in their sectors, LHC Group (NASDAQ: LHCG) and Littelfuse (NASDAQ:LFUS) look like great stocks to buy now. Each company has outstripped S&P500 average over the last decade. Obviously, companies have to do something right.
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1. The dynamics of home care help the LHC
Our aging population, along with the growing expense of extended hospital stays, has created a need for more home healthcare services, and this is the LHC Group’s business model. In its fourth quarter earnings call, the company said an independent survey found that 86% of adults and 94% of Medicare beneficiaries prefer to recover at home after a hospital stay. Complications caused by the COVID-19 pandemic have further crystallized the need for nursing care and home recovery solutions. The LHC is a partner of more than 400 hospitals. It employs more than 33,000 staff to provide home health care, palliative care, community services and residential care.
The LHC released its fourth quarter and full year 2021 figures on February 24, and the company announced its record revenue of $2.2 billion, up 7.6% year-on-year. the other. The company’s earnings per share (EPS) was $3.69, compared to $3.56 in 2020. LHC also reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $265.5 million , up 11% year-over-year, making 2021 its seventh year. consecutive year of increased EBITDA.
The healthcare company’s guidance for 2022 calls for another great year, with revenue of between $2.50 and $2.55 billion, adjusted diluted EPS of between $5.60 and $6.00 per share and a Adjusted EBITDA between $270 and $290 million.
There is no doubt about the increased need for home health care. A study by Grand View Research values the market at $320.6 billion in 2021 and forecasts it will have a compound annual growth rate (CAGR) of 7.88% through 2028, reaching a market of 545.1 billions of dollars. The biggest challenge for LHC and other home healthcare companies is maintaining enough staff to meet demand, especially as there is a shortage of qualified nurses in the industry.
2. Littelfuse is headed for a strong future
Littelfuse, a Chicago-based company with more than 17,000 employees, manufactures a line of electronic sensors, modules and fuses used in a variety of industrial, transportation, electronics and medical device applications. The company is best known for its small fuses for cars, but it is also a key player in the manufacture of fast charging systems for electric vehicles (EVs).
According to a study by Bloomberg New Energy Finance, electric vehicles represent only 3% of global car sales, but this number is expected to reach 10% by 2025 and 58% by 2040. This will create an increased need for charging stations. fast charging that can charge an EV in half an hour. These chargers can deliver up to 400 amps to a battery, creating challenges in keeping charger cables cool and preventing ground currents. To provide protection against overload currents and short circuits, the DC charger connected to an AC source requires high-current, fast-acting safety fuses of the type manufactured by Littelfuse.
While its products may be small, its revenue certainly is not. The stock is down just over 4% in the past year, but the company’s strong margins and potential make it a good buy, even with supply issues plaguing the industry. short term,
In 2021, the company reported revenue of $2.1 billion, up 44% from the prior year with EPS of $11.38, up 115% from 2020 The company’s operating margin was 18.5%, compared to 11.5% in 2020.
The company hasn’t been shy about making acquisitions that help it increase its revenue. Last year, it completed the $315 million purchase of Carling Technologies, which makes switching, circuit protection and power distribution equipment. This purchase helps open markets in Japan, India and Korea to Littelfuse. The company also spent $70 million to acquire Hartland Controls, which makes electrical components used primarily in heating, ventilation, air conditioning and refrigeration.
On top of that, Littelfuse raised its quarterly dividend last year by 10.4% to $0.53 per share, the 10th straight year it has done so. The yield is modest at 0.86%, but the company has increased its dividend with a compound annual growth rate of 12% since its inception.
Make a smart choice
Not all actions of value are created equal. Long-term trends should help the LHC Group continue to generate revenue. However, everyone in the home healthcare industry seems to be looking for a solution to staffing shortages, which may mean maintaining margins will be difficult.
The steady growth in LHC revenue and EBITDA over the past decade makes it an attractive value play, especially with its relatively low forward P/E ratio of 23.88 compared to its Industry P/E of 28.
Due to its even lower P/E ratio and forward P/E, Littelfuse (21.49 and 17.76, respectively) may be an even better choice. The increased use of electronics in cars, whether electric vehicles or not, will continue to help this aspect of its business. Over the past decade, its growth has not been as strong as that of the LHC, but the past year shows that its activity is adapting to market trends. Its solid operating margins and the constant growth of its dividends give me confidence in its future.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.