NEW YORK (AP) -- Shares of Capital Senior Living Corp. rose Wednesday, after a Raymond James analyst initiated coverage of the stock with a "Strong Buy" rating, saying that the shares are undervalued and poised for growth.
THE SPARK: Analyst John Ransom also set a $17 price target for the stock based on a conservative estimate of the total value of the company's assets and operations. He added that he expects acquisitions to generate significant cash in the future for the Dallas-based provider of senior living services.
THE BIG PICTURE: Demand for senior housing continues to increase as the U.S. population ages and more baby boomers reach retirement. The percentage of the U.S. population over the age of 65 is expected to increase 16 percent from 40.2 million in 2010 to 46.8 million by 2015, the analyst said.
THE ANALYSIS: Ransom also noted that the company is boosting its holdings by buying properties with relatively cheap government loans and that its holdings are located in favorable markets in 23 states.
"With over 70 percent of its properties in Texas and the Midwest, the company has concentrated on markets with favorable resident, housing and economic profiles," Ransom wrote in a note to investors.
Meanwhile, occupancy at the company's properties continues to increase while its holdings are also shifting toward higher-rent units, significantly boosting revenue growth, he said.
Ransom also noted that the company has limited exposure to Medicare and Medicaid restrictions, because most independent living and assisted living residents cover their own costs.
THE SHARES: Up 89 cents, or 6.3 percent, to $14.95 in afternoon trading, after peaking at $15.32 earlier in the day and easily passing their previous 52-week high of $14.40. The stock has rallied 85 percent in the year to date.