The Ensign Group, Inc. (ENSG Quick QuoteENSG ) continues to be in investors’ good books on the back of its inorganic growth strategy, leading to top-line improvement. The company emerged as a lucrative investment option on the back of its robust portfolio, operational performance and a solid 2021 outlook. All these factors instill investors’ confidence in the stock.
The presently Zacks Rank #3 (Hold) company has an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.
Over the past 30 days, the stock has witnessed its 2021 earnings estimate move 0.6% north.
Ensign Group’s trailing 12-month return on equity (ROE) reinforces its growth potential. Its ROE of 22.3% came against the industry’s negative ROE of 29%. This, in turn, reflects its tactical efficiency in utilizing its shareholders’ funds.
The company delivered adjusted operating earnings of 83 cents per share in second-quarter 2021, matching the Zacks Consensus Estimate. The bottom line improved 13.7% year over year.
Results benefited from a healthy revenue stream. The company also gained from continued improvements in census and managed care skilled mix across the portfolio along with better operational expense management.
Following second-quarter results, it raised its current-year earnings projection to $3.55-$3.67 from the previous outlook of $3.54-$3.66 per share. It still expects its annual revenues in the band of $2.62-$2.69 billion, the midpoint indicating a rise of 10.6% from the 2020 reported figure. The bullish guidance should instill investors’ confidence in the stock.
Ensign Group has been on a buyout binge with respect to skilled nursing hubs for many years now. It has a tradition of acquiring distressed healthcare operations that require a significant clinical, financial and cultural turnaround.
The company boasts a strong inorganic growth story with several acquisitions made in the past decade. Its historical growth is mainly driven by its expertise in taking over real estate or leasing post-acute care operations and transforming those into market leaders. With each acquisition, the company sharpened its capability, both clinically and financially.
The company also purchased Sedona Trace Health and WellnessCenter in Austin, TX and Cedar Pointe Health and WellnessCenter in Cedar, TX to penetrate further in the Texan region. Ever since the pandemic hit, it has been successful in adding 17 properties to its portfolio.
As of Jun 30, 2021, Ensign Group operated 175 facilities under long-term lease arrangements and has options to buy 11 of the 175 hubs. It has a busy roster of activities going forward.
This hospital company’s top line has been growing since 2012. Revenues witnessed a five-year CAGR (2015-2020) of 12.4%, driven by both its Medicaid and Medicare businesses. The company’s organic growth strategies and acquisitions are likely to drive its top line. Total revenues rose 7.8% year over year in the first six months of 2021. It expects its 2021 revenues in the band of $2.62-$2.69 billion, the midpoint indicating a rise of 10.6% from the 2020 reported figure.
The solvency level impresses too. Its total debt is 11% of its capital, much lower than the industry’s average of 80.9%. Also, its times interest earned stands at 36.4X, which came against the industry’s negative average of 0.8X. As of Jun 30, 2021, it had $198.4 million of cash and cash equivalents and a revolving line of credit of up to $350 million in available capacity, higher than its long-term debt less current maturities of $111.2 million.
Supported by its strong finances, the company could carry on with efficient capital deployment via share buybacks and dividend payouts. It has been a dividend-paying company since 2002 and has increased its annual payout in 18 straight years.
Ensign Group’s board of directors recently approved a 5% hike in its quarterly dividend in a bid to enhance shareholder value. The company’s dividend payment is expected to continue. We expect its financial strength to continue buoying investors’ confidence in the stock.
Moreover, it has been witnessing a sequential improvement in occupancy from the first-quarter level with better same-store and transitioning occupancy achieved in the second quarter. Ensign Group witnessed pre-COVID-level occupancy in the markets like Colorado and Arizona.
The consensus mark for 2021 earnings indicates an upside of 15.7% from the year-ago reported figure.
Zacks Rank and Price Performance
Shares of the company have gained 41.9% in a year, underperforming the industry’s growth of 53.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks in the same space are Acadia Healthcare Company, Inc. (ACHC Quick QuoteACHC ) , HCA Healthcare, Inc. (HCA Quick QuoteHCA ) , and Universal Health Services, Inc. (UHS Quick QuoteUHS ) , all presently holding a Zacks Rank #2 (Buy).
Acadia Healthcare, HCA Healthcare and Universal Health have a trailing four-quarter earnings surprise of 26.1%, 11.7% and 29%, on average, respectively.