On August 13, Aveanna Healthcare (NASDAQ:AVAH) held its second-quarter earnings call, and the tone was different from prior quarters spent explaining away a caregiver shortage. Revenue climbed 13.7% year over year to roughly $670 million, and every one of the company’s three divisions grew. But the headline moment came when CEO Jeffrey Shaner announced that California’s 2027 budget will finally include a meaningful pediatric private duty nursing rate increase, effective January 1, 2027, closing out an advocacy push that took four years and now touches all 32 of Aveanna’s private duty states.
Bull Case: The Labor Fix Is Working
Aveanna’s core strategy for the past several years has been aligning caregiver capacity with the payers willing to pay for it, and the numbers on the call suggest that bet is paying off. Home health and hospice revenue rose 14.8% year over year, private duty services grew 14.0%, and medical solutions added 9.4%, with adjusted EBITDA up 8% to $95.4 million. On the government side, Aveanna landed seven state rate enhancements by the second quarter and expects more once state budget processes wrap up in the third quarter, with California standing as the biggest prize of all. On the payer side, private duty services now has 37 preferred payer agreements after adding three in the quarter, and those agreements cover 64% of the division’s managed care volume, up from 60% in the first quarter. Home health has already hit its full-year goal of 50 preferred payers, with episodic admissions running at 81% of the mix and episodic volume growth of 18.5%.
Management also pointed to CMS’s proposed home health rule, published July 1, and its finalized hospice rule, published August 6, as supportive of stable industry rates. Layered on top is the Family First Homecare acquisition, closed in early June and on track to finish integrating by late in the fourth quarter, plus guidance raised to more than $2.68 billion in revenue and more than $365 million in adjusted EBITDA for the year.
Bear Case: Growth Comes With Fine Print
Not every figure on the call moved in the company’s favor. Private duty services revenue per hour rose just 1.7% to $44.62, while the segment’s cost of revenue per hour jumped 7.8% to $31.74, and the spread per hour landed at $12.88 as caregiver wage increases continue working their way through the business. Management also noted that the year-ago quarter in that same segment included about $9 million in nonrecurring favorable items, which makes the current growth rate a harder comparison than it first appears. Much of the good news still depends on government timing that Aveanna does not control: the California rate increase is pending final details from the Medi-Cal department, and additional state wins hinge on budget cycles still playing out. The Family First Homecare deal was funded entirely out of cash on hand, and its integration is not expected to finish until late in the fourth quarter, so the returns on that spending have not fully shown up yet.
The balance sheet still carries $1.48 billion in variable rate debt, with $1.4 billion hedged against rate increases, alongside $24.5 million in outstanding letters of credit. And medical solutions, the smallest of the three divisions, has only 20 of the 25 preferred payer agreements it is targeting for the year, trailing the pace set elsewhere in the business.
What The Market Is Pricing
39 hedge funds held Aveanna last quarter, up from 34 the quarter before, which points to institutions adding rather than trimming their positions. Short interest sits at 4.96% of the float, enough to show a real bear camp without the crowding that tends to precede a sharp squeeze. As of August 21, the stock trades at a forward P/E of 17.30, a multiple that already assumes the rate relief and preferred payer gains keep showing up in the numbers.
Two Ways This Plays Out
Aveanna’s second quarter reads like a company that spent years fixing structural problems, finally seeing the fixes show results. The California rate increase and the string of preferred payer agreements give the growth story a longer runway once the Medi-Cal details are finalized. But labor costs in private duty services are still climbing faster than reimbursement rates in that segment, and a chunk of this quarter’s growth traces back to a year-over-year comparison that included one-time items.
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