The Ensign Group, Inc. ENSG has emerged as a lucrative investment option, courtesy of consistent top-line growth over the past several years, operational improvements achieved post acquisition of real estate or post-acute care operations and robust cash generating abilities. In fact, these factors instill optimism in the stock’s long-term prospects as well.
The stock currently has a Zacks Rank #1 (Strong Buy) and an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors. Back-tested results have shown that stocks with a VGM Score of A or B combined with a Zacks Rank #1 or 2 (Buy) are the best investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s analyze the factors that make this stock a compelling choice for investors right now.
Upbeat Earnings Guidance: Concurrent with solid second-quarter 2020 results, Ensign Group enhanced earnings guidance for 2020. Earnings are projected between $3 per share and $3.10 per share, which is higher than the prior expected range of $2.50 per share to $2.58 per share. This strong outlook is likely to buoy investor optimism.
Impressive Earnings Surprise History: Ensign Group boasts an impressive earnings surprise record. The company has a trailing four-quarter earnings surprise of 17.08%, on average.
Positive Estimate Revision: The Zacks Consensus Estimate for current-year and next-year earnings have been revised upward by 5.9% and 5.6%, respectively, over the past 30 days.
Strong Operating Profit: Ensign Group’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 21.9% not only compares favorably with the 2019-end ROE of 17.3% but is also higher than the industry’s ROE. This, in turn, reflects its tactical efficiency in utilizing its shareholders’ funds.
Business Tailwinds: Revenues at Ensign Group have grown consistently since 2018. The momentum continued in the first half of 2020 as well. The top line has been benefiting on the back of its robust Medicaid and Medicare businesses. Solid performance at the company’s transitional and skilled services segments have also contributed to revenues. In fact, an aging U.S. population has spurred demand for the company’s senior living operations.
The healthcare provider, with a strong presence in strategic markets across 14 states, has been striving to acquire real estate or post-acute care operations and transforming them into market leaders. It has a proven track record of achieving operational improvements within five quarters post its numerous buyouts of skilled nursing facilities. As of Jun 30, 2020, its portfolio comprises 226 skilled nursing operations.
Moreover, Ensign Group has a healthy balance sheet with strong financial flexibility, which implies that its cash reserves are sufficient to meet debt obligations. The company’s total debt to total capital of 17% at second-quarter end compares favorably with its industry average of 96.5%. Also, its times interest earned ratio of 13.3 at second-quarter end is higher than the industry’s figure of 1.5, highlighting that the company’s earnings are sufficient to cover interest obligations.
Furthermore, strong cash flows bode well for Ensign Group, which enables it to engage in prudent shareholder-friendly moves via share buybacks and dividend payments. Its dividend yield of 0.4% compares favorably with the industry’s figure of 0.3%.
Shares of Ensign Group have gained 19.1% in a year against the industry’s decline of 16.5%.
The price performance looks impressive in comparison to its medical peers, namely, Five Star Senior Living Inc. FVE, Brookdale Senior Living Inc. BKD and HCA Healthcare, Inc. HCA. While shares of Five Star Senior Living and HCA Healthcare rallied 9.7% and 0.8%, respectively in a year, shares of Brookdale Senior Living have lost 66.7% in the same time frame.
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