The Ensign Group expands with strategic acquisitions

Published: 2025-06-27 03:09:55 ET ENSG

Published on 06/27/2025 at 03:09, updated on 06/27/2025 at 07:35

By Joshua Cooper

The Ensign Group has started the year on a high, driven by robust financial performance and strategic acquisitions. The company's latest results underscore significant growth in revenue and earnings, bolstered by improvements in care services, increased occupancy, and strategic expansion efforts.

The Ensign Group, Inc. was founded in 1999 and is based in the US. It is a holding company with various independent subsidiaries that offer skilled nursing, senior living, and rehabilitative services, along with other ancillary businesses, such as mobile diagnostics and medical transportation. The company operates through two main segments: Skilled Services and Standard Bearer. The Skilled Services segment encompasses the management of skilled nursing facilities and rehabilitation therapy services. The Standard Bearer segment includes specific properties owned by the company through its real estate investment trust, which are leased to skilled nursing and senior living operations, including both its own subsidiaries and third-party operators.

The Ensign Group provides services at 312 healthcare facilities across Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Washington, and Wisconsin. In addition, the company engages in acquiring, leasing, and owning healthcare real estate to support the post-acute care continuum through various acquisition and investment opportunities.The company has around 39,300 employees.

The Ensign Group released its Q1 25 financial results on April 29, 2025. The company posted a 15.8% y/y increase in revenues, reaching $1,170m. This growth was driven by improvement in care services, increased occupancy and strategic acquisitions. Operating income increased by 22.6% to $125m, with margins expanding by 58bp to 10.7%. Net earnings climbed 17% to $80.3m. Following the announcement, the company's stock experienced a notable rise of approximately 20%.

The Ensign Group announced the acquisition of two skilled nursing facilities in Coeur d’Alene, Idaho: Ironwood Rehabilitation and Care Center (80 beds) and Lakeside Rehabilitation and Care Center (100 beds), effective June 1, 2025, under a long-term, triple net master lease. CEO Barry Port expressed excitement about expanding in Idaho. Steve Farnsworth, President of Pennant Healthcare LLC, praised the cultural and operational fit of the new facilities.

In addition, Ensign acquired Toluca Lake Transitional Care, a 52-bed skilled nursing facility in North Hollywood, California, effective June 1, 2025. The real estate will be acquired by Standard Bearer Healthcare REIT, Inc. CEO Barry Port and Adam Willits, President of Flagstone Healthcare South LLC, highlighted the facility's fit and growth potential in California.

The Ensign Group posted a solid revenue CAGR of 17.5% over FY 21-24, reaching $4,260m. Operating income rose at a CAGR of 12% over the same period, reaching $443m in FY 24, with margins of 10.4%. Net income therefore increased at a CAGR of 15.3% to $298m in FY 24.

The FCF increased from minus $4.8m to $74.9m over the same period. Cash and cash equivalent rose from $262m in FY 21 to $465m in FY 24. Moreover, total debt also rose from $1,270m to $1,970m in FY 24. However, debt to equity of the company improved from 123.8% to 107.3%.

On the other hand, Encompass Health Corporation, a local peer, reported a lower revenue CAGR of 10.2% over the past three years, reaching $5,370m in FY 24. Operating income increased at a CAGR of 10.1% to $1,170bn in FY 24. Net income rose at a CAGR of 3.4% to $256m.

Looking ahead, analysts anticipate revenue CAGR of 11.5% over FY 24-27, reaching $5,901m. Operating income CAGR of 12.1% to $691m, with margins expanding by 19bp to 11.7% in FY 27. In addition, analysts estimate a net profit CAGR of 14.8% to $451m with margins expanding by 65bp to 7.7% in FY 27, with EPS expected to increase to $7.4 in FY 27 from $5.1 in FY 24. Likewise, analysts estimate operating income CAGR of 8.8%. Net profit to grow at a CAGR of 11.7% for Encompass Health.

Over the past year, the company's stock has delivered robust returns of approximately 27.5%, reflecting a positive fundamental trajectory. In comparison, Encompass Health delivered higher returns of about 43.7%.

The Ensign Group is currently trading at a P/E of 26.1x, based on the FY 25 estimated EPS of $5.9, which is lower than its 3-year historical average of 26.9x but higher than that of Encompass Health (24.1x). In terms of EV/EBITDA, the company is currently trading at 15x, based on the FY 25 estimated EBITDA of $569m, which is higher than its 3-year historical average of 14.5x and Encompass Health’s valuation of 12.1x.

The Ensign Group is pretty much liked by six analysts, with four having ‘Buy’ ratings, one having ‘Outperform’ rating and one having ‘Hold’ rating for an average target price of $165.2, implying 7.4% upside potential from the stock's current price.

Overall, the company has strong financial performance and strategic acquisitions position well for continued growth and expansion. With a solid track record and promising future projections, the company is poised to capitalize on its strengths in skilled nursing and senior living services.

However, The Ensign Group’ business is subject to a variety of risks and uncertainties, including high competition, impacting Ensign's pricing and occupancy rates. Regulatory scrutiny and legal challenges pose financial and reputational risks. Ensign's acquisition strategy carries integration and operational risks, potentially leading to inefficiencies and revenue shortfalls.

Joshua Cooper