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Ensign Group Surges 51.8% in a Year: More Room for Upside?

Zacks Equity Research

The Ensign Group, Inc. ENSG has been in investors’ good books on the back of increasing revenues and inorganic growth strategies.

In the first quarter of 2019, it delivered adjusted operating earnings of 55 cents per share, up 22.3% year over year on the back of higher revenues of $549 million, which in turn, increased 11.6% year over year.

In a year’s time, this Zacks Rank #2 (Buy) company has surged 51.8%, outperforming the industry’s growth of 6.6%.

The stock carries 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.  

The long-term growth rate of the company stands at 15%, which remains positive as it is above the industry's average of 14.3%.

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 and transforming the same into market leaders. With each buyout, the company has sharpened its proficiency, both clinically and financially.

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 existing markets. We expect the company’s buyouts to bode well for long-term growth.

Growing 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 driven 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 favor its revenue stream going forward.

Efficient Capital Deployment: The company has been taking up several initiatives in order to prudently 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. We believe, the company’s financial strength will continue to buoy investors’ optimism on the stock.

Solid 2019 Outlook: A bullish guidance also instills investor’s faith in the stock. The company has provided a yearly outlook for earnings in the band of $2.22-$2.30 per share, the mid-point being nearly 33% higher than $1.70 reported in 2018. Revenues are expected between $2.34 billion and $2.4 billion, the mid-point being 12.9% higher than $2.1 billion posted in 2018.

The Zacks Consensus Estimate for current-year earnings is pegged at $2.27 on revenues of $2.33 billion, indicating an increase of 20.7% and 13.5%, respectively, from the year-ago reported figure.

For 2020, the Zacks Consensus Estimate for earnings stands at $2.51 on $2.54 billion revenues, implying a respective 10.7% and 9% improvement from the prior-year reported numbers.

Other Stocks to Consider

Investors interested in the medical sector might also look into some other top-ranked stocks like HCA Healthcare, Inc. HCA, Molina Healthcare, Inc MOH and WellCare Health Plans, Inc. WCG, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

HCA Healthcare provides health care services. In the last four quarters, the company delivered average beat of 15.74%.

Molina Healthcare offers Medicaid-related solutions to meet the health care needs of low-income families and individuals. In the trailing four quarters, the company came up with average beat of 88.17%.

WellCare Health offers managed care services to government-sponsored health care programs. The company pulled off average positive surprise of 13.52% in the preceding four quarters.

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