Pennant COO John Gochnour: Valuations in Hospice Are Becoming More Realistic

The Pennant Group Inc. (NASDAQ: PNTG) is on the hunt for hospice acquisitions as previously record-high price tags in the market trend downward.

The home health, hospice and senior living company aims to pursue acquisition opportunities across all of its service lines. Higher valuations in home health and hospice have dampened the ability to stretch deeper into these markets, but ebbing pricing tides may be shifting towards greater opportunities, according to Pennant President and COO John Gochnour.

With the valuation dust settling, more hospice acquisitions are on the horizon for Pennant, he indicated.

“We’re seeing more opportunities coming to market in the valuation zone that we feel comfortable pursuing in our disciplined acquisition strategy,” Gochnour said during a second-quarter earnings call Wednesday. “Primarily, we’re seeing home health, but also hospice, multiples return to more normalized rates. Valuations in hospice are becoming more realistic.”

Multiples in the home health and hospice space reached a peak of 29 times EBITDA in 2020, outpacing the previous year’s record high of 26 times, reported the PwC Health Research Institute.

Hospice valuations have since come down, but some sellers have been holding onto their assets waiting for transactions to reach a profitable return on investment, according to Gochnour.

“It’s taking a little bit for sellers to get comfortable that what they had before isn’t worth the same amount as it was, but their financials tell that story,” he said. “And so, they’re becoming more comfortable with that, and we see a number of attractive opportunities coming to the table.”

Pennant’s home health and hospice segment brought in $95 million in Q2 this year, an 11.3% rise from the same period in 2022. This amount represented the lion’s share of its overall revenue, which reached $132.3 million during the second quarter, a 13.7% year-over-year increase.

Hospice revenue swells were in part driven by a bump in patient admissions, which saw a 9.6% year-over-year jump. Additionally, average daily hospice census reached 2,494 in the second quarter, representing a 9.1% increase compared to the prior year’s Q2.

Pennant anticipates long-term growth in the hospice landscape. Most recently, the company acquired Idaho-based Bluebird Home Health, Bluebird Hospice and Bluebird Home Care for an undisclosed sum.

This added to Pennant’s 101 home health and hospice locations across 14 states.

Pennant has set sights on expanding its hospice reach, making workforce and strategic growth investments that are anticipated to have long-term impacts on sustainability, according to Pennant CEO Brent Guerisoli.

The company has made “calculated investments” in additions to its home health and hospice segment clinical leadership teams aimed at “accelerated growth,” Guerisoli said on the earnings call. Though these investments represented margin pressures on revenue, Pennant is beginning to see the benefits in terms of future scale in these markets, he indicated.

“[For] some of that investment, it just takes time for that to pay off, but we’re also seeing that especially acutely on the home health and hospice side,” Guerisoli said. “We strategically made a decision to invest in a number of additional market leaders and building those teams so that we can grow. And we can grow strategically from an acquisition and expansion standpoint. Some of the pressure that we’re feeling right now is a result of those investments that we made at the beginning of the year. And as the year goes on, and as time goes on, those will just pay off because those investments will become less and less than a percentage of the overall revenue that we bring in.”