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Ensign Group (ENSG) Up 3.7% in 30 Days: More Room to Rally?

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Shares of The Ensign Group, Inc ENSG have inched up 3.7% in the past month, outperforming the industry’s 1.2% increase, thanks to major portfolio-boosting efforts and growing operations in Skilled Services.

Zacks Investment Research
Zacks Investment Research


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Based in San Juan Capistrano, CA, Ensign Group provides healthcare services in the post-acute care continuum, urgent care center and mobile ancillary businesses in the United States. ENSG has a market cap of $4.4 billion. It is constantly gaining from the active inorganic growth strategy as demand for healthcare-related services keeps rising.

Can It Retain Momentum?

The answer is yes and before we get into the details, let us show you how its estimates for 2022 stand. The Zacks Consensus Estimate for Ensign Group’s 2022 earnings is pegged at $4.09 per share, indicating a 12.4% rise from $3.64 a year ago. ENSG’s earnings beat estimates in each of the last four quarters, the average being 1.6%. The consensus estimate for 2022 revenuesstands at $3 billion, suggesting a 12.8% rise from the year-ago reported figure.

Now let’s delve into what’s driving the currently Zacks Rank #3 (Hold) stock.

Growing strength in its Skilled Services unit is a major positive. In the March quarter, the segment’s income of $98.3 million improved 10.5% year over year. Skilled nursing operations and campus operations of the segment totaled 217 and 23, respectively, as of Mar 31, 2022. Efficient operations are expected to keep boosting its profits.

ENSG’s expertise in acquiring real estate or leasing post-acute care operations and transforming the same into market leaders is praiseworthy. Ensign Groupexecutes disciplined acquisitions in a rather fragmented market to boost its market share. Thanks to its active acquisition strategy, ENSG’s portfolio jumped to 251 healthcare operations, 32 of which include senior living operations in 13 states. ENSG now owns 102 real-estate assets. We expect all these moves to bode well for ENSG in the long haul.

Ensign Group’s frequent share repurchases and dividend payments at regular intervals helped ENSG retain investors’ confidence in this stock. The same has been a dividend-paying company since 2002 and has increased its payout annually for the past two decades. This is supported by ENSG’s financial strength.

Ensign Group’s total debt is 12.7% of its capital, much lower than the industry’s average of 80.9%. As of Mar 31, 2022, ENSG had $248.5 million of cash and cash equivalents, and a revolving line of credit of up to $593.3 million in available capacity, much higher than the current maturities of long-term debt of $3.7 million. In April 2022, the credit facility was hiked $250 million, leading to a total of $600 million. Thus, its solvency position remains strong.

Risks

Despite the upside potential, there are a few factors that are holding back the stock’s growth. Rising expenses and declining free cash flows are major headwinds. Expenses increased 14.3% and 8.6% year over year in 2020 and 2021, respectively. Further, in the first quarter of this year, the metric jumped 14.3% year over year. This trend can affect its bottom line. Also, for the trailing 12-month period, free cash flow declined 3.3% to $201 million. Nevertheless, we believe that a systematic and strategic plan of action will drive long-term growth.

Key Picks

Some better-ranked stocks in the medical space are Select Medical Holdings Corporation SEM, Omega Therapeutics, Inc. OMGA and Progyny, Inc. PGNY, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Select Medical’s earnings is currently pegged at $2.19 per share. SEM has witnessed one upward estimate revision in the past 30 days against none in the opposite direction.

Select Medical’s earnings beat estimates in each of the last four quarters, the average being 42%.

The Zacks Consensus Estimate for Omega Therapeutics’ earnings indicates a 28.9% increase from the prior-year reported number. OMGA has witnessed one upward estimate revision and no downward movement in the past 30 days.

Omega Therapeutics’ earnings beat estimates twice in the last four quarters and missed the mark on the remaining two occasions.

The consensus estimate for Progyny’s 2022 bottom line has improved 4.5 times in the past 30 days. PGNY has witnessed three upward estimate revisions during this time against none in the opposite direction.

Progyny’s earnings beat estimates in each of the last four quarters, the average being 169.7%.


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