AVAH Surges 45% in Five Days: How to Play the Stock After Earnings?

Aveanna Healthcare AVAH shares surged 45.1% in the past trading sessions, regaining their 50-day moving average, which indicates strength in the stock. AVAH released its fourth-quarter 2024 results on March 13, reporting robust revenue growth alongside improved gross margin.

The company's fourth-quarter revenues reached $519.9 million, marking an 8.6% increase compared with the same period in the prior year. Gross margin for the quarter rose 15.7% to $171.7 million. Notably, Aveanna achieved a net income of $29.2 million for the quarter, a significant turnaround from the net loss of $25.7 million reported in the fourth quarter of 2023.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

AVAH shares have gained 19.7% so far this year, outperforming the Zacks Medical- Outpatient and Home Healthcare Performance sector’s growth of 3.9% and the S&P 500 Index’s 4% decline.

Aveanna shares trade above the 50 and 200 simple moving average marks. In the year-to-date period, AVAH stock has outperformed its peers, including Amedisys, Inc’s. AMED 1.9% uptick, Addus HomeCare’s ADUS 27.4% decline and The Pennant Group, Inc’s. PNTG 9.2% fall.

AVAH's YTD Performance

Image Source: Zacks Investment Research

Aveanna’s strategic focus on preferred payor agreements and state rate increases is yielding solid returns, particularly in its Private Duty Services (PDS) and Home Health segments. Aveanna secured 12 state rate increases in 2024 and grew its preferred payor agreements. For 2025, AVAH projects revenues between $2.1 billion and $2.12 billion and adjusted EBITDA between $190 million and $194 million, emphasizing continued margin expansion, improved caregiver hiring, and cautious but steady organic growth while planning tuck-in M&A primarily in Home Health and PDS.

Let’s delve deeper and figure out the best course of action for your portfolio regarding AVAH stock.

AVAH Trades Above 50 and 200 SMA

Image Source: Zacks Investment Research

Developments Propelling AVAH’s Growth

Strategic Expansion of Preferred Payor Agreements: In 2024, Aveanna made significant strides in strengthening its preferred payor strategy, which has become a key driver of its growth. The company successfully increased its PDS preferred payor agreements from 14 to 22, with preferred payors now accounting for approximately 50% of its total PDS managed care organization volumes, up from 47% in the third quarter. This shift not only ensures more stable reimbursement rates but also improves clinical outcomes by focusing on partnerships with payors committed to value-based agreements.

Successful Execution of Government Rate Improvements: Another pivotal development in Aveanna’s growth trajectory is its success in securing government reimbursement rate increases across key states. In 2024, the company achieved double-digit rate improvements in states like Georgia and Massachusetts, alongside rate increases in 10 other states. This government affairs strategy, centered around collaboration with state legislatures and governors, directly addresses caregiver wage gaps and improves patient access to care. These favorable rate adjustments have contributed to accelerated caregiver hiring, enhanced staffing levels, and solid revenue and EBITDA growth, setting a strong foundation for continued expansion in 2025.

Transformation of the Medical Solutions Segment: In late 2024, Aveanna initiated a strategic transformation of its Medical Solutions business, applying the same preferred payor strategy that proved successful in its PDS and Home Health divisions. The company identified 17 preferred payors in this segment and began realigning its capacity to focus on partners who offer fair reimbursement and prioritize clinical outcomes.

While short-term volume growth is expected to be muted, the initiative is already driving improvements in gross margins and cash collections. This modernization effort is set to be fully realized by the end of 2025, positioning Aveanna to capture long-term value in the growing enteral nutrition and medical solutions market.

Aveanna: A Compelling Undervalued Opportunity

AVAH is currently trading at a significant discount compared to its historical and industry benchmarks, offering an attractive entry point for value-focused investors. Aveanna’s forward 12-month price-to-sales (P/S) multiple stands at 0.5X, well below the industry average of 2.73X. This substantial valuation gap reflects a potential upside opportunity as the company continues to execute its growth strategies, including expanding preferred payor agreements and strengthening its presence in the high-demand home healthcare market.

Price-to-Sales Forward Twelve Months (F12M)

Image Source: Zacks Investment Research

AVAH’s Long-Term Growth Prospects

Diversification and Expansion of Service Offerings: Aveanna’s long-term growth is driven by its strategic diversification across PDS, Home Health & Hospice (HHH), and Medical Solutions. While PDS and HHH continue to deliver strong organic growth, Aveanna is modernizing its Medical Solutions segment by implementing its successful preferred payor strategy, focusing on high-value partners to boost margins and efficiency. Additionally, targeted tuck-in acquisitions, particularly in Home Health and PDS, are expanding its geographic reach and service offerings, setting the foundation for sustained revenue growth.

Rising Demand for Home-Based Care Solutions: Per a report, the global home healthcare market size was valued at $390.24 billion in 2023 and is projected to witness a CAGR of 7.96% from 2024 to 2030.With increasing demand for cost-effective, high-quality care outside of hospital settings, Aveanna is well-positioned to benefit from the broader shift towards home and community-based care models.

Governments and managed care organizations are increasingly seeking solutions that reduce healthcare costs while improving patient outcomes, needs that Aveanna’s platform directly addresses. As healthcare systems face capacity and labor challenges, Aveanna’s ability to deliver skilled nursing, rehabilitation, and medical supply services at home strengthens its relevance in the evolving healthcare landscape, ensuring a durable demand pipeline for years to come.

Strengthened Government & Payor Partnerships: Aveanna’s strong relationships with state governments, managed care organizations, and preferred payors underpin its long-term growth. Its success in securing rate increases and value-based agreements across multiple states demonstrates its ability to navigate regulations and support sustainable caregiver wages. With a goal of expanding PDS preferred payor agreements to 30 by 2025, increasing payor penetration enhances financial predictability and scalable volume growth. As more payors recognize Aveanna’s role in reducing institutional care costs, the company’s revenue visibility and cash flow stability are set to strengthen.

AVAH’s Sales & EPS Growth

AVAH’s sales growth is projected to be 4.1% in 2025 and 5.2% in 2026. EPS growth is expected to rise significantly, reaching 33.3% in 2025 and 75% in 2026.

Image Source: Zacks Investment Research

Key Challenge for Aveanna Healthcare

One of the most significant challenges Aveanna faces is the ongoing labor shortage in the healthcare sector, particularly the availability of qualified caregivers and nurses. Despite strong demand for home-based care services, Aveanna's ability to scale is directly constrained by its capacity to recruit, train, and retain skilled caregivers.

Wage pressures, competition for talent, and burnout among healthcare workers further exacerbate this issue. Although the company has made progress by negotiating higher reimbursement rates to offer better compensation and improve hiring trends, the labor market remains tight, making it challenging to fully meet the potential of patient demand.

How to Play AVAH Stock?

Aveanna demonstrates resilience and strategic focus through its expansion of preferred payor agreements, strong state partnerships, and diversified service lines. Despite industry challenges, its operational initiatives and emphasis on margin improvement support long-term growth prospects. Trading at a discount to peers, Aveanna’s attractive valuation is highlighted by its Value Score of B. Combined with its Zacks Rank #1 (Strong Buy) rating, the stock offers a compelling opportunity for investors seeking value with solid growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

7 Best Stocks for the Next 30 Days

Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."

Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research