Deutsche Bank downgraded ESC price target by $6 after the company warned that they would miss previous guidance. The negative outlook primarily stems from the Frontline show, which has painted ESC as a careless, money hungry, drive occupancy rates to 100% at all costs type of company that does not care about the well-being of their patience. The negative outlook according to DB is ESC specific as competitors have been seeing robust business activity.
I watched the Frontline show and can tell you it was extremely negatively biased. With over 40,000 residents and over 20,000 employees, and you add elderly people with many with dementia to the mix, you are bound to have accidents from time to time. Frontline highlighted about a dozen or so "suspicous" deaths. One moving story was about a former star NFL player who woke up one night, wondered out in the halls, and drank toxic cleaning fluid from one of the cabinets an employee forgot to lock. And days later, the former NFL player died. ESC was sued and payed a rediculous $20+ million to the family. Frontline spins that as a classic example of how ESC doesnt care for their patience and only has one goal of maximizing profits. The company clearly had procedures employees were to follow. But if the employee refuses or forgets to follow, the company is the big villan. Down goes ESC...
...reality is, due to the size and nature of the business, there is bound to be accidents from time to time. Some tied directly to poor Company policy, but other times it is also human/employee error. Frontline clearly had an agenda to make the company out to look like villans and even saying while people were dying, the company's stock took off on Wallstreet. In reality, the senior living industry is a tough business. Employees/nurses are expensive, lawsuit awards by judges are often aggregious, and service demands are high. ESC and many other senior living and nursing home companies haven't made money in years. With lawsuits for accidents that are $20+ million a pop, even a rare hit here an there can be costly and it really incentivizes people to sue sue sue. And people continue to complain how expensive senior living costs are?!?!
Sure, the company has accounting issues with revenue recognition, which may impact the timing of revenue being recognized, but cash flows will not be impacted.
If you look at almost any valuation multiple, price to book, price to sales, price to cashflow/share, AH is by far the most undervalued in the sector. Look at healthcare IT peers Athena, Cerner, and even troubled Allscripts. All have multipes like 2-3 times or more than AH. AH has no debt and like $200-$300 million of cash on its books (they havent filed in a while so this is an estimate). With a market cap of $900M, the company is only worth $600M.
Healthcare IT is booming and a larger peer competitor may find AH very appealing as a takeover target, especially if they can realize higher multiples for AH's business after an acquisition.
ESC selected by Chinese government to build senior living facilities in Beijing. Says a lot about ESC reputation and China could be a nice potential growth market.
They are restating the timing of recognition of revenue. This doesnt change their contracts with customers nor does it change their backlog. The question is how frontloaded was some of their revenue? Competitors and peers trade at several times price to sales and price to book of AH's. While the market has been going gangbusters and making new highs and taking healthcare IT company stock prices up 30-50% recently, AH has nosedived like 30%.
Unless they cooked they books to the point that what they previously stated was exagerated by several fold, AH is way undervalued compared to its peers. If AH cant get the valuation multiples itself because of its poor controls history, sell the company and let the buyer unlock that value.
Even down today on a huge market up day. CG also 40% off highs for the year. Wouldn't it make sense that since the market is at all time highs, CG's portfolio companies are probably valued at or close to all time highs? Why is CG down trending in a bull market?
And it really is CG specific. If you look at BX, APO, KKR, they are at either all time or multiyear highs. What is the disconnect with CG that I am missing?
Management seems to think price is undervalued given the recent insider $4 million buy of CG stock at $26.88.
I'm completely puzzled how CG is trading very close to 52 week lows while the majority of PE firms are trading at close to their 52 week highs. The market is also near all time highs, so you would think CG's portfolio of companies should have a high valuation and therefore CG's stock should be near the highs.
I would like to see a few more insiders step up and buy shares at these levels. It makes no sense to me why CG is so low.
I dont think I've heard any caller into Mad Money asking about CG on the Lightning Round. I frequently hear BX and Cramer is definitely a huge fan, even given BX is at its 52 week high.
How come nobody has called and asked about CG and why CG is trading close to its 52 week low? It would really be good to get Cramer's thoughts on CG and whether he thinks CG is a steal at these low levels.
I do recall a California Pension fund looking to sell a huge chunk of CG earlier this year. Not sure if that fund has fully unloaded yet, but that may be a cause for the why CG is among the very worst performers in the space. I own AYR, an aircraft leasing company that was owned by a fund called Cerberus. Last year, Cerberus sold a huge chunk causing the stock to be among the worst performers in the sector. However, shortly after the sale, AYR has taken off over 50% and like CG, insiders have been big buyers.
Anyways, they year end into Q1 tend to be very strong for PEs, especially given that is when they payout the big dividend for the year. With everything else at 52 week highs, I'm betting big on this lagger that is near lows for the year as I cant find a reason why CG is selling off. Maybe Cramer knows...
Sentiment: Strong Buy
Looks like $25 has been a pretty good bottom as it CG hasn't been staying in the $24s for long. Need a lot of patience in CG but I think it is best poised out of all the PE firms to do well in the year end rally. It just hasnt gotten any attention yet.
Sentiment: Strong Buy
As Blackstone, KKR and others continue to make new highs, institutions will gravitate toward CG, which is near its lows. I think part of the problem is the relatively pessimistic statements made by CG's leadership saying "the investment environment has grown more challenging" compared to very bullish statements by funds like Blackstone, which was quoted as saying " the good times are just starting."
I'd be very surprised that all other PE funds are realizing great returns on investments but Carlyle is finding things "challenging"
Sentiment: Strong Buy
Completely doesn't make any sense. They don't need capital so why would they do this note? The note is so small and fairly immaterial. The value of the stock dropped by close to the proceeds of the note. Any thoughts?
surprised how badly ANW took a hit on this news. Dryships had to issue equity because they couldnt tap the debt markets and they are only a tad off their highs and only had like a 6-7% selloff.
Reaction seems overblown here, but shareholders are probably as puzzled as I am at why they are raising cash when it appears they aren't cash constrained like Dryships.
After destroying like $75M or so in equity value, whatever their rationale was for this issuance makes no sense. They better have a blowout quarter and some great reasons for why they are doing this issuance on the quarterly call.
So you are saying raising capital to finance incremental business (to take on a bigger A/R balance)? If indeed their credit facility doesn't give them a lot of flexability in terms of expanding the balance sheet a whole lot, and business is really booming that much to the point they lack working capital, then your response makes sense. I guess the other thing to look at is the conversion terms on the debt to equity and how potentially dilutive that may be.
If what you said does end up to be the rationale for the cash raise, why do you think there was such negative response by the market? This drop was on super heavy volume that is like 15 times normal volume.
But I hope what you said is true, in which case I think we will bounce back fairly quickly as details for why they are doing the raise becomes clear and they start showing results to prove it.
Thanks for the very thoughtful response.
I can only guess the interest will be super low on a convertible as compared to issue regular debt.
4% interest rate. That is lower than my 30 yr mortgage!
Conversion at a $14+ share price, well higher than the current stockprice.
This does not appear to be a highly dilutive deal as the stock drop would have suggested. Shipping companies like Dryships that are issuing tons of equity at lower than market prices havent even seen such a drop. Looks to me like this news isn't negative and the stock price should recover quickly, especially if they have a good reason for the funds on their upcomming quarterly call.
CG has been one of the worst performers in the PE space this year. KKR, BX, APO all at or near their 52 week highs. Even with the recent runnup, CG is far from it's 52 week highs. So the rising tide has lifted everybody else a lot more than it has lifted CG.
About 18 months ago, BX was in the mid teens while CG was in the mid 20s. How is BX now about to exceed CG in price? Does CG management just suck at investing, which is why they are performing the worst in the PE space or is the market mispriced?
With market hitting new highs, Emeritus Senior living going up 10%, FVE is really lagging. Yes, there are issues with FVE, but it is selling at a steep discount to the industry and while the markets are at new highs, FVE is close to its lows for the year. With everything taking off, FVE has got to look appealing at these levels.
there looks to be another lawsuit in the 10Q. ESC just cant get away from these lawsuits after already paying some $20million plus losses.