AdaptHealth Corp. (AHCO) stock intrinsic value fair value estimate & owner earnings analysis

AdaptHealth supplies home medical equipment and supplies to patients: CPAP machines and sleep apnea supplies, oxygen and ventilators, diabetes devices (glucose monitors and insulin pumps), and equipment for patients leaving hospitals. In 2025 it served about 4.3 million patients through roughly 640 locations, on revenue of $3.24 billion. Sleep was 42.5% of 2025 revenue, Respiratory 21.2% and Diabetes 18.3%, with Wellness at Home the balance. The company is paid by Medicare, Medicaid and commercial insurers for the equipment and supplies it provides. The economics matter more than the accounting profit. The company buys and replaces a large fleet of patient equipment: it spent $382 million on equipment in 2025 against $341 million of depreciation on patient equipment, so nearly all of that spending is upkeep, and we treat it as a cost. We also treat stock compensation as a real cost and strip out one-year swings in receivables and payables. On that basis, cash earnings available to shareholders (owner earnings) were $0.68 per share in 2022, $1.04 in 2023, $1.63 in 2024 and $0.74 in 2025. Large accounting write-downs (goodwill charges of $831 million in 2023, $13 million in 2024 and $128 million in 2025) are non-cash and are not deducted, but they show that past acquisitions have repeatedly been worth less than paid, which is why the low case is cautious. Amortization of acquired intangibles is small and shrinking ($20 million in 2025 versus $47 million in 2021). What changed in 2026 drives the valuation. In July 2026 the company agreed to sell its Diabetes Health business to Cardinal Health for $235 million in cash, subject to customary purchase price adjustments. With its second-quarter results on August 4, it also took a $144 million goodwill charge on its Respiratory Health and Wellness at Home units, whose fair values had fallen below their carrying values, and lowered its full-year outlook, citing the sale, the difficult transition of a West Coast capitated contract and an unexpected price increase from one of its manufacturers. Diabetes Health's own operating profit measure had already fallen from $79.6 million in 2023 to $60.5 million in 2024 and $26.1 million in 2025. Our own arithmetic shows the same pressure: for the first six months of 2026, owner earnings were about negative $63 million, compared with about positive $2 million in the first half of 2025 (the first half is seasonally weak, but the year-on-year drop is $65 million). Equipment spending rose to $287 million from $184 million while operating cash flow slipped from $258 million to $239 million. Starting point. The middle of the 2022 to 2025 owner earnings is $0.89 per share, about $119.5 million a year. We did not use 2024 alone, because equipment spending was unusually low that year. From that we remove the Diabetes Health business, which contributed roughly $46.5 million a year on average over 2023 to 2025 after allowing for its equipment costs, leaving about $73.0 million. We then remove the $65 million first-half 2026 deterioration once, without assuming it gets worse or recovers, leaving about $7.6 million a year, or $0.06 per share. Trailing owner earnings fell 55% in 2025; the base case assumes no growth, so it starts below the trailing rate, not above. Second-quarter 2026 revenue rose 12.7% to $740 million, but it came with more equipment spending and weaker cash generation, so we credit no growth from it. Revenue was flat at about $3.2 billion from 2023 to 2025, and no contract or backlog secures growth. Base case, $2.25 per share. The $235 million of sale proceeds are counted at face value ($1.73 per share, before any taxes on the sale) and no debt is subtracted, because interest ($101 million paid in 2025) is already inside owner earnings. The remaining business earns $7.6 million a year for ten years, then fades to zero over the following ten, since recurring supply and rental relationships with patients are what has kept revenue steady, but nothing we can name and evidence extends them further. That is worth about $0.52 per share. Low case, $1.33 per share. The first-half 2026 cash shortfall persists and owner earnings are negative $20 million a year for three years, after which nothing further is credited. Supporting facts: the second-quarter 2026 goodwill charge shows the company itself now values the Respiratory Health and Wellness at Home units below what it carried them at; the Medicare competitive bidding program is scheduled to resume, with contracts and payment amounts in effect no later than January 1, 2028, for categories that include urological supplies, ostomy supplies, hydrophilic catheters and over-the-counter back, knee and upper extremity braces; and past acquisitions have been written down repeatedly. Sale proceeds are still counted. High case, $6.10 per share. The transition of the West Coast capitated contract and the cost pressures of 2026 pass, and owner earnings return to the $73.0 million the remaining business earned at the 2022 to 2025 middle, reaching it in the third year ($7.6 million, then $40 million, then $73.0 million), holding for ten years and then fading over ten more, plus the sale proceeds. We did not assume growth or margin expansion beyond the level already reached. What could make this wrong. If the sale does not close, all three cases lose the $1.73 per share of proceeds but keep the Diabetes Health earnings, so they would need to be redone. If the equipment spending rise is mostly for new patients who pay back for years, our starting point is too low. The company is also indebted (interest paid was $101 million in 2025), and Medicare reimbursement decisions can change earnings quickly. We could not tell from the filings how much of the first-half 2026 shortfall is seasonal timing or one-time transition cost.