The Ensign Group, Inc. ENSG has been in investors’ good books by virtue of its strong operating performance and strategic initiatives, which are driving growth.
The company is gaining from improvement in occupancy in its Transitional and Skilled Services segment. Moreover, numerous acquisitions made over the last several years in each of its business segments are now generating returns.
It has posted positive earnings surprise in each of the four reported quarters with an average being 3.1%. The stock has witnessed 1.8% upward revision in 2019 earnings estimates over the past 30 days. For the current year, the company’s earnings are expected to grow by 19.15% compared with the industry’s growth of 15.5%.
The company is gaining from increased revenues in its home health and hospice portfolio and assisted living and independent living portfolio. Both these businesses account for nearly 16% of the company’s total revenues. It expects to boost these segments by acquiring underperforming operations and driving organic growth.
The company is aggressively seeking opportunities to buy real estate and lease well-performing and struggling skilled nursing, assisted living and other healthcare related businesses across the United States.
The stock has also gained from the positive earnings guidance for 2019 which calls for earnings in the band of $2.22-$2.30 per share, the mid-point of which is nearly 33% higher than $1.70 reported in 2018. Revenues are expected between $2.34 billion and $2.4 billion, the mid-point being 12.9% higher than $2.1 billion reported in 2018.
Another positive that attracts investors is the company’s consistent dividend growth policy. Last December, it hiked its quarterly dividend by 5.6%,and marked the 16th consecutive increase. It signaled continued confidence in its operating model and ability to return long-term value to shareholders.
The company’s balance sheet strength is also impressive. Despite significant acquisitions made recently, which involved the use of debt funds, its lease-adjusted net-debt-to-adjusted EBITDAR ratio decreased to 3.77x at year-end 2018, down from 4.2x at the end of 2017. This moderation in leverage levels have been due to growing levels of EBITDAR from transitioning and newly acquired operations that have continued to grow.
The Ensign Group is further set to gain from its niche position in the post-acute care industry that is witnessing high demand from an aging population, increasing life expectancies and a trend toward shifting of patient care to lower cost settings.
Given the favorable industry conditions and the company’s strong operating fundamentals, we believe the stock to continue its rally in the coming quarters. It has already gained 42%, year to date, significantly outperforming its industry’s growth of 15%.
Its performance looks all the more attractive when compared with that of other companies in the same space. Capital Senior Living CSU and Brookdale Senior Living, Inc. BKD declined 45% and 2.7%, respectively while Genesis Healthcare, Inc. GEN gained 9.3% in the said time frame.
The Ensign Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
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