LifePoint (LPNT) Thriving On Inorganic Growth, Ample Capital

LifePoint Health Inc. (NASDAQ:LPNT) is well poised to grow over the long term given a number of acquisitions made over the past few years that gives it a strong foothold in the industry. Divestures made in recent years have also helped the company focus on growth areas. Its strong balance sheet and consistent increase in operating cash flow enable it to use funds for share buyback and acquisitions.

Acquisitions and strategic partnerships forged in the recent years have supplemented the company’s efforts to achieve organic growth in its existing markets. Hospitals newly added to its portfolio have accounted for the majority of its growth.

Early this year, LifePoint entered into a joint venture agreement with a wholly owned subsidiary of LHC Group, Inc. to form In-Home Healthcare Partnership Following this, the company owns and operates its home health agencies and hospices as well as some of LHC’s home health agencies and hospices near its hospitals.

From 2014–2016, acquisitions provided significant EBITDA growth opportunities. The acquisitions are in a transitional phase of outsized margin improvement in 2017, moving toward low double-digit margins. Earlier, the company said that it expects contribution to net revenue ($6.5 billion to $6.6 billion guided) of more than $2 billion and approximately $55 million of incremental adjusted EBITDA in 2017.

Year to date, the company’s shares have added 18% compared with 17% gain by the Zacks categorized Medical Hospital industry. The outperformance reflects the company’s strong growth, sturdy capital position and value accretion from the acquisitions made in recent years.

Alongside, LifePoint has been divesting non-core and less profitable units to focus on its core business that generates a higher return on equity.

The company’s free cash flow, a measure of the ability of any business to generate cash and to repay and incur additional debt, increased every year from 2006 to 2015 save 2012 and 2013. The company utilizes its cash for share buyback and acquisitions. In 2016, it bought back $233.1 million of its stock, reflecting an increase from $134.5 million in 2015. Also, balance sheet strength provides the company with flexibility to pursue a growth-through-acquisition strategy.

LifePoint carries a Zacks Rank #2 (Buy). Other stocks in the medical sector with the same Zacks Rank include Aetna Inc. (NYSE:AET) , Acadia Healthcare Company, Inc. (NASDAQ:ACHC) and Universal Health Services Inc. (NYSE:UHS) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Aetna, a health care services provider, beat estimates in each of the last four quarters, with an average positive surprise of 8.6%.

Acadia, a provider of inpatient behavioral health care services, beat estimates in two of the last four quarters, with an average positive surprise of 1.74%.

Universal Health, operating acute care hospitals, behavioral health centers, ambulatory surgery centers, radiation oncology centers, is expected to report second-quarter results on Jul 25. The Zacks Consensus Estimate of $2.07 translates into year-over-year growth of 6.7%. It also surpassed earnings estimates in two of the last four quarters.

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