Here's Why Buying Brookdale (BKD) Stock is a Prudent Move Now
Brookdale Senior Living Inc. BKD is well poised to grow on the back of revenue per available unit (RevPAR) growth and a rising occupancy level trend. Also, with the growing senior population, demand for BKD’s services is expected to increase in the coming days.
Headquartered in Brentwood, TN, Brookdale is a leading operator of senior living communities. It has a market cap of $754.7 million.
Outperformer & Zacks Rank
Over the past six months, shares of Brookdale have surged 48%, outperforming the industry‘s 3.5% rise and the Zacks Medical Sector’s 2.4% fall. Courtesy of solid prospects, this Zacks Rank #2 (Buy) stock is worth adding to your portfolio at the moment.
Let’s delve deeper.
Brookdale reached 19 straight months of year-over-year increases in weighted average occupancy in May. The first-quarter weighted average occupancy level rose 290 basis points (bps) to 76.3% and its May weighted average occupancy grew 200 bps from the year-ago level to 76.6%. The ongoing growth in occupancy levels is likely to lead to higher resident fee revenues. Its first-quarter 2023 resident fee revenues jumped 12% year over year to $713.4 million.
The company’s growth opportunity is attractive at the moment. From the pandemic low of 69.6% in first-quarter 2021, its quarterly weighted average occupancy has come a long way. Yet, it has more room for growth. If the company can reach its pre-pandemic level, which was 84.5% in the fourth quarter of 2019, it will drive more than $300 million of incremental revenues.
BKD’s RevPAR growth for the first quarter was 12.9% year over year. For the second quarter, the company expects RevPAR growth to be within 11.5-12%. This sends a strong message of a potential sustaining growth trend.
Considering the diminishing staffing challenges, labor costs are likely to normalize, boosting profits. Brookdale expects second-quarter adjusted EBITDA to be in the range of $72-$77 million, signaling a jump from the year-ago level of $50.7 million, which will improve the bottom line.
The Zacks Consensus Estimate for BKD’s second-quarter earnings indicates a 55.6% year-over-year improvement from a loss of 45 cents per share. Furthermore, the consensus estimate for its current-year earnings signals a 37.6% improvement from a loss of $1.25 per share. Brookdale beat on earnings in two of the last four quarters and missed twice, the average surprise being 13.4%.
Brookdale Senior Living Inc. Price and EPS Surprise
Brookdale Senior Living Inc. price-eps-surprise | Brookdale Senior Living Inc. Quote
Key Risk
There are a few factors that investors should keep an eye on. For example, BKD’s balance sheet weakness can be a cause for concern. Its long-term debt to capital of 88.1% is much higher than the industry average of 72.1%. Its long-term debt, less current portion at the first-quarter end was at around $3.8 billion and the current portion was at $87.7 million. Being on the negative side of free cash flow will not help it to pay those debts. Nevertheless, we believe that a systematic and strategic plan of action will drive its growth in the long term.
Other Top-Ranked Players
Some other top-ranked stocks in the broader medical space are Humana Inc. HUM, Apyx Medical Corporation APYX and Boston Scientific Corporation BSX, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Humana’s 2023 earnings indicates a 12% year-over-year increase. Humana beat earnings estimates in all the last four quarters, with the average being 8.9%.
The Zacks Consensus Estimate for Apyx Medical’s 2023 earnings indicates a 38.8% improvement from the year-ago reported figure. The consensus estimate for APYX’s 2023 revenues indicates 37.3% year-over-year growth.
The Zacks Consensus Estimate for Boston Scientific’s 2023 bottom line suggests a 14% increase from the prior-year levels. BSX has witnessed 12 upward estimate revisions in the past 60 days against none in the opposite direction.
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