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Ensign Group's Inorganic Growth Impresses, Debt Level Hurts

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The Ensign Group, Inc. (ENSG - Free Report) boasts a strong inorganic growth story driven by its expertise in acquiring real estate or leasing post-acute care operations and transforming them into market leaders. These initiatives position the company well for robust organic growth.

The company’s revenues have been growing since 2012. Apart from inorganic growth, the consistent strong performance by the Transitional & Skilled Services segment has also aided its top-line growth. The trend continued in the first half of 2017 as well.

Ensign Group’s solid financial health also paves the way for several growth oriented capital deployment strategies. The company has been paying dividends since 2002 and has increased its payout annually for the past 14 years. Frequent share repurchases and dividends payments have helped it retain investors’ confidence in this stock. In the last one year, its shares have gained 5% while the industry declined nearly 27%.

However, Ensign Group’s long-term debt level has been rising since 2011. The trend continued in first-half 2017 as well. This rising level of debt not only raises financial risks but also increases interest expenses which, in turn, hurt the margins.

Rising level of operating expenses also leads to increase in total expenses. This severely affects the company’s bottom line.

Ensign Group’s valuation looks expensive at the current level. Looking at the company’s trailing 12-month price-to-sales (P/S) ratio, investors may not want to pay any further premium. It currently has a one-year P/S ratio of 0.6, which is above the industry average of 0.2.

Zacks Rank and Key Picks

Ensign Group currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Investors interested in the medical sector can consider stocks like Aetna, Inc , Anthem, Inc. and Amedisys Inc (AMED - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).

Aetna’s earnings surpassed expectations in each of the last four quarters with an average beat of nearly 19%.

Anthem delivered positive surprises in three of the last four quarters with an average beat of 8.6%.

Amedisys delivered positive surprises in three of the last four quarters with an average beat of 7.2%

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