Boomers Retire, You Profit…

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We’re on the verge of a major shift in demographics. The baby boomer generation is entering retirement. Over the next 20 years we will see the upper end of the age spectrum grow substantially… and that means more demand for simple items… items like healthcare.

A handful of companies are set to benefit from this trend… and one that’s certain to get a lot of business is long term care facilities.

QUICK FACTS
Ticker                                      FVE
Industry                                   Long-Term Care Facilities
Recent Price                          $2.94
Market Cap                             $142.7 m
Shares Outstanding               47.6 m
Average Volume                     153,151
Dividend Yield                          N/A
Website                                   http://www.fivestarseniorliving.com/

COMPANY DESCRIPTION

Five Star Quality Care (FVE) operates senior living communities in 29 states. They provide a broad range of services. Various therapies, onsite pharmacies, prosthetics, and even radiology are just a few of their additional capabilities.

The company has three specific long-term care options. The largest, assisted living, accounts for 48.8% of their business. Independent Living is second at 28.9%, and Skilled Nursing facilities at 22.3%. FVE has all totaled approximately 24,000 units at 230 properties.

Two of their properties are rehabilitation hospitals, 13 are outpatient clinics, and five institutional pharmacies.

FINANCIALS

Five Star had $481.6 million in assets at the end of June 2011. In fact their twelve month trailing revenue at the end of Q2 2011 was $1.2 billion. This is a big company with a price to book of 0.6x!

Revenue was up over $10 million year over year in Q2 2011. The company has a healthy return on equity of 12.6% and margins are all in the positive.

Their Independent and Assisted Living community occupancy is approximately 86%. FVE also has the benefit of having the lowest general and administrative expenses as a percentage of revenue in the industry. Their G&A is only 4.5% of revenue; their nearest competitor is 5.3%.

In fact, of the four largest publicly traded firms in this industry FVE is the only one to have nine straight quarters of profitability.

KEY METRICS ANALYSIS

Trailing P/E                                     5.3 x
Price / Sales                                   0.1 x
Return on Assets                            3.9%
Insider ownership                           12.1%
Short Ratio                                      2.8 x
Current Ratio                                  1.0 x
Total Debt To Equity                        28.8 x

RECENT EVENTS

Right now the industry is trying to wean itself off of public sources of revenue. FVE was ahead of the curve when government Medicare reimbursement was recently ‘recalibrated’ down 11% for the 2012 fiscal year. This primarily affects the skilled nursing segment of the company’s business.

Management is making a concerted effort to continue reducing Medicare and Medicaid reimbursement revenue. They are already down to only 29% of the company’s senior living revenue stream.

At the same time the company is aggressively expanding. FVE announced plans to acquire 40 more communities that are private pay, and almost none of the 5,000 units forecasted in 2011 will include skilled nursing.

MANAGEMENT TEAM

Bruce J. Mackey Jr. – CEO
Rosemary Esposito, R.N. – COO
Paul V. Hoagland – CFO
Vern D. Larkin – VP, General Counsel and Secretary

STOCK ANALYSIS

 

 

 

 

 

 

Chart Courtesy of StockCharts.com

It looks like FVE found a bottom in early October. But don’t expect it to hang around these levels for long.

FVE’s 52-week low was $2.28 and the 52-week high was $8.95. Right now the stock is trading at $2.94. The 50-day moving average is near $2.82 a share and the 200-day moving average is at $5.44. The company has a market cap of $142.7 million and 47.6 million shares outstanding.

 

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