Cardinal Health, Inc. (CAH), Koninklijke Philips Electronics NV (ADR) (PHG): 3 Ways to Profit From the Trend Towards In-Home Medical Care

Although insurance costs surely play a role, it is believed that in-home care provides a better environment for rehabilitation and recovery from medical/surgical procedures, for hospice care for the terminally ill, and for the growing number of elderly baby boomers who will need long-term care.  These three companies provide services and equipment for in-home healthcare and are solid investments.  At present, each of the following companies have revenue in the billions of dollars; it can only be expected that, as in-home care becomes a more prominent feature of the healthcare environment in general, their revenues will increase.

Hill-Rom Holdings, Inc. (NYSE:HRC)

Hill-Rom Holdings provides patient-care equipment with substantial focus on patient accommodation: beds and other furniture as well as patient-support equipment.  Financially, the company straddles the line between small-cap and mid-cap.  Returns indicate a fairly effective management, and it has a healthy EBIT margin. Given a manageable debt-to-equity ratio of .40 (with a quick ratio of 1.30) and a healthy cash flow, this is a company that looks to be able to deliver, and deliver it does, with revenues (ttm) of $1.69 billion, a figure that is growing regularly.  The dividend (ttm) of $0.50 is easily covered by an EPS of $1.76; indeed, with a dividend cover of 352% and growing revenues, it would not be impossible to see a dividend increase in the near future. (For those not familiar with dividend cover, it is the inverse of payout ratio, and is determined by dividing EPS by the dividend. The higher the cover, ultimately the more sustainable the dividend.  Ideally, dividend cover should be higher than 100%, but less than that is not worrisome as long as cash flow per share can cover the dividend.)

Hill-Rom Holdings, Inc. (NYSE:HRC) offers a line of hospital beds and other hospital-room furniture; it produces built-in units providing access to various patient needs, including lighting, power outlets, connections for patient-monitoring equipment as well as oxygen feeds.  To top it off, the company also offers architectural consultation services, something certainly to be valuable as hospitals build additions to their facilities and renovate existing accommodations.  It also provides therapeutic equipment for respiration and treatment of wounds.

The item Hill-Rom is most likely to provide for home healthcare is, of course, the bed – and for the elderly or limited-ability patient this can be one of the most important considerations (for both patient and caregiver).  Fully automated, the beds are even capable of taking a patient’s weight.  Several sets of controls make it possible for the caregivers – and even the patient – to raise or lower the head and/or the foot of the bed, and the bed as a whole.  This last feature makes it possible to raise the patient to a level most convenient for access the patient to perform blood draws, check vitals, clean the patient, and – in general – to provide caregiver services without the need to constantly bend over – a major back-saving feature.

I was amazed at the number of private companies producing beds for in-home care – some with features comparable to the advanced features on Hill-Rom beds.  One of the public companies manufacturing hospital beds is Stryker Corporation (NYSE:SYK), a company that specializes in several areas of medical technology (nanotechnology, orthopedics and surgical equipment).  It is not, however, as geared to the home-healthcare market as Hill-Rom.

Cardinal Health, Inc. (NYSE:CAH)

Cardinal Health, Inc.There is a plethora of pharmaceutical distribution and delivery companies, and one will no doubt wonder why I have chosen Cardinal Health, Inc. (NYSE:CAH) over the others, such as, for instance, McKesson Corporation (NYSE:MCK). To be sure, McKesson has the greater capitalization at $25 billion, and a revenue (ttm) of over $120 billion to Cardinal’s $100 billion; but neither of these figures is so distinctive as to constitute a decisive victory for McKesson Corporation (NYSE:MCK).  Both companies have debt/equity ratios in the neighborhood of 0.60, and both fall short of liquidity to cover their current liabilities with quick ratios of 0.60, but with adequate current ratios just over 1.00; indeed, both companies are virtually equal in most of the measures presented in the table above.

Credit: Cardinal Health, Inc. (NYSE:CAH)