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Why Is Ensign (ENSG) Down 5.1% Since the Last Earnings Report?

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About a month has gone by since the last earnings report for The Ensign Group, Inc. (ENSG - Free Report) . Shares have lost about 5.1% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

The Ensign Group Q2 Earnings Miss Estimates, Up Y/Y

The Ensign Group reported second-quarter 2017 adjusted operating earnings of 31 cents per share that missed the Zacks Consensus Estimate by 11.4%. Earnings, however, inched up 3.1% year over year.

Adjusted EBITDA (earnings before interest, taxes, depreciation & amortization) increased 169 basis points (bps) to $38.1 million from the prior-year quarter.

Operational Update

Total revenue of $448.3 million increased nearly 9% year over year and also surpassed the Zacks Consensus Estimate by 2.5%.

Same store managed care revenues for transitional and skilled services increased 10.8%, with growth of 5.5% in managed care days from the prior-year quarter.

Same store skilled mix revenues for transitional and skilled services as a percentage of revenues for all segments increased 56 bps to 51.6% from the prior-year quarter.

Transitioning revenues for transitional and skilled services increased 8.2% to $77.8 million with occupancy growth of 268 bps to 73.9% from the prior-year quarter.

Transitioning Medicare and Medicaid skilled revenues for transitional and skilled services increased 8.2% and 16.9%, respectively, from the prior-year quarter.

Transitioning Medicare and Medicaid skilled days increased 2.9% and 27.0%, respectively, from the prior-year quarter.

Total expenses at the end of the second quarter rose 9% year over year to $426.2 million due to higher cost of services, and depreciation & amortization costs.

Quarterly Segment Update

The Transitional, Skilled & Assisted Living Services Segment:

The segment reported revenues of $408 million, up 10% year over year. Solid growth in skilled nursing and facilities drove the upside. Notably, the segment accounted for 91.1% of the total revenue in the second quarter.

Ensign Group's assisted and independent living subsidiary, Bridgestone Living LLC grew its segment income by 12.1% to $3.7 million from the prior-year quarter.

Home Health & Hospice Services

For this segment, total operating revenues were $34.6 billion, up 25% year over year. Strong growth in home health services resulted in the improvement. This segment contributed 7.7% to the total revenue.

Ensign Group's home health and hospice subsidiary, Cornerstone Healthcare, Inc.’s  segment income grew 13.2% to $4.9 million and revenues jumped $6.1 million or 21.5% to $34.6 million from the prior-year quarter.

Other Services

This segment reported revenues of $5.4 million, down 50.4% from the prior-year quarter. This segment accounted for 1.2% of the total revenue.

Financial Update

Total cash and cash equivalents decreased 43% to $33 million as of Jun 30, 2017 from $57.7 million as of Dec 31, 2016.

As of Jun 30, 2017, long-term debt was $284.5 million, up 3.3% from $275.5 million at the end of 2016.

Cash from operations was $25 million, down 32.4% year over year.

Dividend Update

Ensign Group paid 4.25 cents per share of its common stock to shareholders through dividends during the quarter.

Guidance for 2017

Management expects annual revenues in the range of $1.76–$1.80 billion. It had earlier projected revenues in the range of $1.818–$1.842 billion.

Annual earnings are now expected in the range of $1.46–$1.53 per share compared with $1.62–$1.70 guided previously.

Management’s guidance is based on diluted weighted average common shares outstanding of 53.7 million and a 35.5% tax rate.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

VGM Scores

At this time, Ensign's stock has a subpar Growth Score of D, though it lags a bit on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value investors based on our style scores.

Outlook

Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.




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