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Ensign Group (ENSG) Up 57.2% Year to Date: More Room for Rally?

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The Ensign Group, Inc. (ENSG - Free Report) has been favored by investors owing to its encouraging operating performance, underpinned by rising revenues and inorganic growth strategies.

The company raised its 2020 guidance following strong third-quarter results. For the full year, earnings guidance is expected between $3.04 and $3.12, up from the previous view of $3-$3.10. The midpoint of the lifted outlook is indicative of a 58% rise from the 2019 adjusted results.

Evidently, shares of this currently Zacks Rank #3 (Hold) company have rallied 57.2%, outperforming its industry's increase of 13.6% year to date.
Despite the pandemic, the company has performed well so far this year.

The price performance looks stellar when compared to other companies’ stock movements in the same space, such as HCA Healthcare, Inc. (HCA - Free Report) , Acadia Healthcare Company, Inc. (ACHC - Free Report) and Magellan Health, Inc. (MGLN - Free Report) , which have gained 4.9%, 36% and 4.7%, respectively, in the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s third-quarter results benefited from steady revenues.

Ensign Group’s top line has been growing since 2012, driven by both its Medicaid and Medicare businesses. In the first nine months of 2020, the metric improved 20.1% year over year, aided by a solid segmental performance at Transitional and Skilled Services. The company still expects 2020 revenues in the $2.42-$2.45 billion range, implying a 6.3% rise from the year-ago reported figure. This upbeat outlook should instill investors’ confidence in the company.

Ensign Group boasts a strong inorganic growth story with several acquisitions executed in the past decade. With each buyout, the company sharpened its expertise, both clinically and financially. During the first nine months of 2020, it purchased five operations. There are several buyouts in its pipeline, which are expected to close in the fourth quarter of 2020 and early 2021.

Its portfolio now consists of 226 skilled nursing operations, 24 of which include senior living operations and other ancillary businesses across 14 states.

The company has been taking several initiatives to efficiently deploy capital to add shareholder value. Frequent share repurchases and dividend payments at regular intervals helped the company retain investors’ confidence in its stock. Ensign Group has been a dividend-paying company since 2002 and has increased its payout annually for the past 17 years, a trend that is most likely to continue. The company sustained its capital deployment on the back of its solid capital position despite the current economic woes.

Its solvency position also remains a positive. Its total debt is 13.2% of capital, much lower than the industry’s average of 99.6%. Also, its times interest earned stands at 17.8X, much higher than the industry average of 0.9X. As of Sep 30, 2020, it had cash and cash equivalents worth $175 million and $342 million of available capacity under its revolving credit facility, higher than the current maturities of long-term debt of $3.1 million. Thus, its financial flexibility is impressive.

More Room to Run?

We expect the company to continue performing well as it steadily pursues its strategic goals to enhance its capabilities. Its balance sheet strength is likely to be retained.

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