The Ensign Group, Inc. ENSG has been favored by investors owing to its encouraging operating performance, underpinned by rising revenues and inorganic growth strategies.
In the second quarter of 2019, it reported adjusted earnings of 51 cents per share, beating the Zacks Consensus Estimate by 2% and also improving 24.4% year over year on the back of higher revenues.
The company expects its adjusted earnings for 2019 in the range of $2.22-$2.30, suggesting an increase of 20% from 2018’s reported figure. It also anticipates annual revenues between $2.34 billion and $2.40 billion.
In a year’s time, this company has surged 32.6%, outperforming the industry’s growth of 4.7%.
We expect this momentum to continue as it gains traction from the following factors:
Inorganic Growth Profile: Ensign Group boasts a strong inorganic growth story with several acquisitions completed in the past decade. Its historical progress has been mainly driven by its expertise in purchasing real estate or leasing post-acute care operations plus transforming the same into market leaders. It steadily seeks transactions to own real estate properties and lease both well-performing and struggling skilled nursing, assisted living and other healthcare related businesses in the new and prevalent markets.
During the first half of 2019, it expanded its portfolio with the addition of seven stand-alone skilled nursing operations, one stand-alone senior living operation, three campus operations, two home health agencies, four hospice agencies and two home care agencies.
Rising Revenues: The Ensign Group’s top line has been improving since 2012. The metric witnessed a six-year CAGR (2012-18) of 16.3%. This consistent rise was majorly boosted by the company’s Transitional & Skilled Services, accounting for nearly 84% and 82.3% of the total revenues in 2017 and 2018, respectively. The company’s growth strategies and acquisitions are likely to aid its revenue base going forward. It also anticipates annual revenues between $2.34 billion and $2.40 billion, the mid-point indicating a rise of 16.2% from the 2018 figure.
Capital Management: The company has been taking up several initiatives in order to intelligently deploy capital. Frequent share repurchases and dividend payments at regular intervals have retained investors’ confidence in the stock. Ensign Group has been a dividend-paying company since 2002 and has hiked its payout annually for the 16 straight years. Its cash flow from operations has also been increasing over the last few quarters. In 2018, the same skyrocketed 192% year over year. Although in 2016 and 2017, its debt level worsened, it again improved nearly 23% year over year in 2018. We believe, the company’s financial strength will continue to buoy investors’ optimism on the stock.
Other Noteworthy Factors
The stock carries a Zacks Rank #2 (Buy) and 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. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 offer the best opportunities. The company’s long-term growth rate of 15% lies above the industry average of 10.5%.
Also, the company delivered a positive earnings surprise in all the last four quarters, the average being 2.5%.
Other Stocks to Consider
Investors interested in the medical sector can also take a look at some other top-ranked stocks like Centene Corporation CNC, Anthem, Inc. ANTM and Molina Healthcare, Inc MOH. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Centene works as a diversified and multi-national healthcare enterprise in the United States. In the trailing four quarters, the company came up with average beat of 4.6%. It carries a Zacks Rank of 2.
Anthem works as a health benefits company in the United States. In the last four quarters, the company delivered average beat of 4.57%. It is a Zacks #2 Ranked player.
Molina Healthcare provides managed health care services under the Medicaid and Medicare programs and through the state insurance marketplaces. The company sports a Zacks Rank of 1 and managed to pull off an average four-quarter positive surprise of 66.9%.