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4 Nursing Homes Stocks to Gain From an Aging U.S. Population

Sapna Bagaria

An aging U.S. population, increasing life expectancies and the shift of patient care toward lower cost settings have fueled demand for post-acute and custodial healthcare services. The post-acute care industry has thus evolved to meet the growing demand.

At a time when the U.S. economy is faced with various macro and micro risks, which are affecting most sectors other than defensive ones like utilities and consumer durables, the Medical Nursing home industry continues to grow.

Year to date, the Zacks Medical Nursing Homes industry has gained 30% compared with the Zacks S&P 500 composite’s growth of 18.2%.

The industry currently carries a Zacks Industry Rank #3, which places it in the top 1% of more than 250 Zacks industries.

Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Factors Favoring the Industry:

Changing Demography and Increased Life Expectancy: As life expectancy continues to increase in the United States and seniors account for a higher percentage of the total U.S. population, overall demand for healthcare services for them will increase. At present, the primary market demographic for skilled nursing services is primarily individuals aged 75 and older. According to the 2018 U.S. Census, between 2010 and 2030, the number of individuals aged 65+ is projected to nearly double from 39 million to 73 million, a growth rate nearly 5 times faster than the 17% increase expected for the total population. The 2018 U.S. Census Bureau estimates that this group is one of the fastest-growing segments of the country’s population and is expected to grow from 13% to 21% of the population by 2030.

Shift of Patient Care to Lower Cost Alternatives: The growth of the senior population in the United States continues to increase healthcare costs, often faster than the available funding from government-sponsored healthcare programs. In response, federal and state governments have adopted cost-containment measures that encourage the treatment of patients in more cost-effective settings such as skilled nursing facilities, for which staffing requirements and associated costs are often significantly lower than acute care hospitals, and other post-acute care settings. As a result, skilled nursing facilities are generally serving a larger population of higher-acuity patients than in the past.

Significant Acquisition and Consolidation Opportunities: The skilled nursing industry is large and highly fragmented, characterized predominantly by numerous local and regional providers. Due to the increasing demand from hospitals and insurance carriers to implement sophisticated and expensive reporting systems, this fragmentation provides significant acquisition and consolidation opportunities for the players.

We believe the post-acute industry has been and will continue to be impacted by several other trends. The use of long-term care insurance is increasing among seniors as a means of planning for the costs of skilled nursing services. In addition, as a result of increased mobility in society, reduction of average family size, and the increased number of two-wage earner couples, more residents are looking for alternatives outside the family for their care.

Stocks to Bet On

We pick some of the stocks from the sector having a favorable Zacks Rank that have witnessed an upward revision in earnings estimates.

Genesis Healthcare, Inc. GEN is expected to gain from its improving organic occupancy, shedding of underperforming assets, and focus on core performance, stabilization of skilled nursing fundamentals and favorable reimbursement outlook.

The stock with a Zacks Rank #1 (Strong Buy) has witnessed an upward revision in 2019 earnings estimates over the past 60 days. For the current year, the company’s earnings are expected to grow by 53% compared with its industry’s growth of 17.5%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Brookdale Senior Living Inc. BKD, though suffering from sluggish occupancy levels, has held up EBITDA decently led by pricing discipline and expense controls. Its cost control should serve the company well once it begins to see recovery in occupancy levels. The company’s ample liquidity, which it has been using for share buybacks, should provide support to the bottom line.

The stock with a Zacks Rank #1 has witnessed an upward revision in 2019 earnings estimates over the past 60 days. For the current year, the company’s earnings are expected to grow by 61% compared with its industry’s growth of 17.5%.

Capital Senior Living Corp. CSU carries a Zacks Rank #2 (Buy). Management is working on stabilizing its business, but high expenses remain a concern. Occupancy levels reported recently were slightly favorable and should improve given the growth initiative under work.

The stock has witnessed an upward revision in 2019 earnings estimates over the past 60 days. For the current year, the company’s earnings are expected to grow by 21% compared with its industry’s growth of 17.5%.

The Ensign Group, Inc. ENSG provides a broad spectrum of skilled nursing, assisted living, home health and hospice, and other ancillary services. With several acquisitions made over the past many years, the company is poised to deliver superior clinical results that will generate strong financial and operating results.

The stock with a Zacks Rank #2, has witnessed an upward revision in 2019 earnings estimates over the past 60 days. For the current year, the company’s earnings are expected to grow by 20.74% compared with its industry’s growth of 17.5%.

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Capital Senior Living Corporation (CSU) : Free Stock Analysis Report
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