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Ensign Up More Than 90% in a Year: Will the Rally Continue?

Zacks Equity Research

The Ensign Group, Inc. ENSG has been in investors’ good books by virtue of its strong operating performance and strategic initiatives, which are driving growth.

The company is gaining from improvement in occupancy in its Transitional and Skilled Services segment. Moreover, the 148 acquisitions made over the last several years in each of its business segments are now generating returns.

It has delivered positive earnings surprise in each of the four reported quarters with the average being 2.61%.

The company is gaining from increased revenues in its home health and hospice portfolio and assisted living and independent living portfolio. Both these businesses account for nearly 16% of the company’s total revenues.  It expects to strengthen these segments further by acquiring underperforming operations and driving organic growth.

The company is aggressively seeking opportunities to buy real estate and lease well-performing and struggling skilled nursing, assisted living and other healthcare related businesses across the United States.

The stock has also gained from the encouraging earnings guidance for 2019. Earnings are expected in the range of $2.17 and $2.26 per share while revenues are expected in the range of $2.29 billion and $2.35 billion. The midpoint of the guided ranges represents a respective 30% and 10.5% increase in earnings and revenues year over year.

Another positive that attracts investors is the company’s consistent dividend growth policy. Last quarter, it hiked its quarterly dividend by 5.6%, which marked the 16th consecutive increase. It also signaled continued confidence in its operating model and ability to return long-term value to shareholders.

The company’s balance sheet strength is also impressive. Despite significant acquisitions, which involved the use of debt funds, its lease-adjusted net-debt-to-adjusted EBITDAR ratio decreased to 3.77 at year-end 2018 from 4.2 at the end of 2017..  This moderation in leverage levels have been due to growing levels of EBITDAR from transitioning and newly acquired operations that have continued to grow.

The Ensign Group is further set to gain from its niche position in the post-acute care industry that is witnessing high demand from an aging population, increasing life expectancies and a shift in patient care to lower cost settings.

Given the favorable industry conditions and the company’s strong operating fundamentals, we believe the stock will continue its rally in the coming quarters. It has already gained 90% in a year, significantly outperforming its industry’s growth of 30%. For the current year, the company’s earnings are expected to grow 17% compared with the industry’s growth of 7.3%.

The company’s performance looks all the more attractive when compared with the returns of  other companies in the same space – Brookdale Senior Living’s, Inc. BKD up 4.2% and a decline of 12% each in Concord Medical Services Holdings Ltd. CCM and Genesis Healthcare, Inc. GEN in a year’s time.

The Ensign Group carries a Zacks Rank #3 (Hold).

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

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