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Ensign Group (ENSG) Grows on Buyouts, High Debt Level a Drag

Zacks

The Ensign Group, Inc. ENSG has significantly grown inorganically over the past few years. The company continues to capitalize on its expertise in acquiring real estate or leasing post-acute care operations and transforming them into market leaders. During the first nine months of 2017, it acquired the real estate operations of Parklane West Healthcare hospice operations in Prescott Valley, Iowa Skilled Nursing facility, Nevada Assisted Living facility, Parkside Senior Living, Desert Blossom Health and Rehabilitation Centre etc. These efforts have positioned the company well for long-term growth.

The company’s top line has been consistently rising. Revenues have witnessed a five-year CAGR (2011-16) of 14%. Apart from inorganic growth, the consistent strong performance of its Transitional & Skilled Services segment has contributed significantly to its revenues. Rising top line has aided margins as well.

Ensign Group’s solid financial health also enables it to take up several growth oriented capital deployment initiatives. It has been a dividend-paying company since 2002 and has increased its pay-outs annually for the past 14 years. Frequent share repurchases and regular dividends payments have helped it retain investors’ confidence.

In a year, the company’s shares have gained 16% while the industry has declined nearly 18%.


However, increasing financial leverage has been a major headwind for Ensign Group. It has been suffering from rising level of long-term debt since 2011. This not only raises financial risks but also increases interest expenses which, in turn, weigh on the margins.

Moreover, the company’s bottom line has been severely affected by rising operating expenses. It has witnessed a continuous increase in its operating expenses since 2012, primarily stemming from general and administrative expenses and cost of services exclusive of rent, depreciation and amortization.

Zacks Rank and Stocks to Consider

Ensign Group presently has a Zacks Rank #3 (Hold).

Investors interested in the Medical sector can consider some better-ranked stocks like Centene Corporation CNC, Molina Healthcare Inc. MOH and Magellan Health, Inc. MGLN. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Centene delivered positive surprises in each of the last four quarters, with an average beat of 10.6%.

Molina Healthcare delivered positive surprises in two of the last four quarters, with an average beat of 108%.

Magellan Health delivered positive surprises in three of the last four quarters, with an average beat of 0.9%.

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New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

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