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Here's Why Investors Should Hold on to Ensign Group (ENSG)

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The Ensign Group, Inc. (ENSG - Free Report) has been in investors' good books on the back of its inorganic growth strategy leading to top-line improvement. The company emerged as a lucrative investment option on the back of its robust portfolio, operational performance and a solid 2021 outlook. All these factors instill investors’ confidence in the stock.

The company has an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Ensign Group’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 21.9% came in against the industry’s negative ROE of 21.5%. This, in turn, reflects its tactical efficiency in utilizing its shareholders’ funds.

At the end of fourth-quarter 2020 results, the company announced an upbeat earnings guidance for 2021. It reaffirmed its current-year annual earnings projection of $3.44-$3.56 per share. The midpoint indicates an upside of 11.8% from the 2020 reported figure.

It still expects its annual revenues in the band of $2.62-$2.69 billion, the midpoint indicating a rise of 10.6% from the 2020 reported figure.

It is needless to say that the company has been on a buyout spree for a long time now. Management looks for purchasing real estate and lease skilled nursing, assisted living and other healthcare-related businesses that are steadily performing well. It also strives to provide necessary assistance to the struggling healthcare businesses across the United States.

The company managed to hone its expertise, clinically and financially with every buyout. It recently acquired three skilled nursing facilities in Colorado, namely Boulder Canyon Health and Rehabilitation, Berthoud Care and Rehabilitation, and South Valley Post Acute Rehabilitation. With its latest purchases, Ensign Group now has a portfolio of 235 healthcare operations, 22 of which also include assisted living operations across 13 states.

Its buyouts and other measures led to a solid top line, which has been growing since 2012. In 2020, the metric improved 18% year over year, driven by a solid segmental performance at Transitional and Skilled Services, which is the only reporting segment of the company. Its revenues gained traction on the back of its Medicaid and Medicare business lines.

Moreover, Ensign Group has a healthy balance sheet with strong solvency level, which implies that its cash reserves are sufficient to meet debt obligations. Its total debt is 12.4% of capital, much lower than the industry’s average of 99.5%. Also, its times interest earned stands at 24.2X, much higher than the industry average of 1.2X, highlighting that the company’s earnings are sufficient to cover interest obligations.

However, the company has been facing escalating expenses for quite some time now.

Zacks Rank and Price Performance

Shares of this currently Zacks Rank #3 (Hold) company have gained 142.3% in a year, outperforming the industry’s growth of 121.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space are Tenet Healthcare Corporation (THC - Free Report) , HCA Healthcare, Inc. (HCA - Free Report) , and Community Health Systems, Inc. (CYH - Free Report) , all presently holding a Zacks Rank #2 (Buy).

Tenet Healthcare, HCA Healthcare and Community Health have a trailing four-quarter earnings surprise of 199.09%, 58.5% and 120.8%, on average, respectively.

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