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Ensign Group (ENSG) Up 7.4% in 3 Months: More Growth Ahead?

The Ensign Group, Inc.’s ENSG shares have jumped 7.4% in the past three months, outperforming the 2.9% increase of the industry, thanks to growing operations in Skilled services. The company has been gaining from the inorganic growth strategy and growing demand for healthcare-related services.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Headquartered in San Juan Capistrano, CA, Ensign Group provides healthcare services in the post-acute care continuum, urgent care center and mobile ancillary businesses in the United States. It has a market cap of $4.4 billion.

Can It Retain Momentum?

The answer is yes and before we get into the details, let us show you how its estimates for full-year 2021 stand. The Zacks Consensus Estimate for Ensign Group’s 2021 earnings is pegged at $3.63 per share, indicating a 16% rise from $3.13 a year ago. The company beat earnings estimates in each of the last four quarters, with an average of 1.8%. The consensus estimate for 2021 revenuesstands at $2.6 billion, signaling a 9.6% year-over-year rise.

Now let’s delve into what’s driving the Zacks Rank #3 (Hold) stock.

ENSG’s growth is being driven by its expertise in acquiring real estate or leasing post-acute care operations and transforming them into market leaders. The company boasts a strong inorganic growth story, with several acquisitions in the past. With each acquisition, ENSG has sharpened its expertise, both clinically and financially. Ensign continues to actively seek transactions to acquire real estate and lease skilled nursing, assisted living, and other healthcare-related businesses in new and existing markets. In the third quarter, it added five new operations.

The company also enhanced its relationship with CareTrust. Year to date, the company has been successful in adding 17 properties to its portfolio. As of Sep 30, 2021, Ensign Group operated 242 facilities under long-term lease arrangements and has options to buy 11 of the 175 facilities. The company has a series of activities lined up going forward. We expect all these moves to bode well for ENSG in the long haul.

Ensign Group’s top line has been growing since 2012. Revenues witnessed a five-year (2015-2020) CAGR of 12.4%, driven by both its Medicaid and Medicare businesses. Further, total revenues rose 9.1% year over year for the first nine months of 2021. The company’s growth strategies and acquisitions are likely to keep driving the top line.

Ensign Group has been taking up several initiatives in order to efficiently deploy capital and boost shareholder value. Frequent share repurchases and dividend payments at regular intervals have helped the company retain investors’ confidence in this stock. The company has been increasing its payout annually for the past 19 years. Ensign Group's board of directors recently approved a 4.8% hike in its quarterly dividend. The company’s financial strength is likely to continue supporting its efforts to boost shareholder value.

As of Sep 30, 2021, it had $304.6 million of cash and cash equivalents and a revolving line of credit of up to $350 million in available capacity, higher than long-term debt less current maturities of $140.6 million. Thus, ENSG’s solvency position is strong.

Risks

Despite the upside potential, there are a few factors that are holding back the stock’s growth. Its rising expenses and declining free cash flows are major headwinds. Nevertheless, we believe that a systematic and strategic plan of action will drive long-term growth.

Key Picks

Some better-ranked stocks in the medical space include Globus Medical, Inc. GMED, Apyx Medical Corporation APYX and Neogen Corporation NEOG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Globus Medical develops healthcare solutions for patients with musculoskeletal disorders. GMED also provides products for orthopedic trauma treatments. The medical device company’s bottom line for 2021 is expected to jump 40.3% from the year-ago figure. Audubon, PA-based Globus Medical has witnessed no movement in estimate revisions in the past few weeks. Globus Medical beat earnings estimates in each of the last four quarters, with the average being 21.4%.

Apyx Medical is a manufacturer of medical devices for cosmetic and surgical markets around the world. Based in Clearwater, FL, APYX’s bottom line for 2021 is expected to rise 17.5% year over year. It has witnessed one upward estimate revision in the past 60 days and no movement in the opposite direction. Apyx Medical beat earnings estimates thrice in the last four quarters and met once, with the average surprise being 25.9%.

Neogen develops products for food and animal safety all over the world. Based in Lansing, MI, the diagnostic and research company’s bottom line for the current year is expected to rise 15.8% year over year. Neogen is well poised to gain from its extensive global foothold and diverse product mix. The company’s long-term growth strategy is impressive.


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