If it became known that a company that provides housekeeping services and meal preparation services could increase your wealth fourfold over 10 years at an annual growth rate of 15.78%, most investors would be surprised. But that's exactly what Healthcare Services Group has done. A simple single investment of $10K growing over a lifetime would surely be a big step in ensuring financial freedom and security in retirement.
Healthcare Services Group, Inc. provides management, administrative, and operating services to the housekeeping, laundry, linen, facility maintenance, and dietary service departments to nursing homes, retirement complexes, rehabilitation centers, and hospitals in the United States. It operates through two segments, Housekeeping and Dietary. The Housekeeping segment engages in the cleaning, disinfecting, and sanitizing of patient rooms and common areas of client's facility, as well as laundering and processing of the personal clothing belonging to the facility's patients. This segment also provides laundry and linen services; and maintenance services comprising repair and maintenance of laundry equipment, plumbing, and electrical systems, and carpentry and painting services, as well as distributes laundry equipment. The Dietary segment is involved in the food purchasing; meal preparation; and the provision of dietician consulting services, which include development of a menu that meets the patient's dietary needs. As of December 31, 2015, the company provided its services to 3,500 facilities in 48 states. Healthcare Services Group, Inc. was founded in 1976 and is based in Bensalem, Pennsylvania.
(Summary) (Company) (Chart)
| 24 October 2016 Price $36.82 1yr Target $44.17 Analysts 6 Dividend $0.74 Payout Ratio 81.31% 1yr Cap Gain 19.96% Yield 2.00% 1yr Tot Return 21.96% P/E 40.42 PEG 2.25 Beta 0.66 | EPS (ttm) $0.91 EPS next yr $1.21 Forward P/E 30.40 EPS next 5yr 18.00% 1yr Price Support $21.78 Market Cap $2.69 Bil Revenues $1.53 Bil Earnings $66.20 Mil Profit Margin 4.31% Quick Ratio --- Current Ratio 3.70 Debt/Equity 0.00 | 1yr RevGR 11.05% 3yr RevGR 9.95% 5yr RevGR 13.18% 1yr EarnGR 158.06% 3yr EarnGR 7.09% 5yr EarnGR 9.42% 1yr DivGR 2.80% 3yr DivGR 2.85% 5yr DivGR 2.33% ROA 13.00% ROE 21.00% |
13 years of increasing dividends.
Description of Services
Healthcare Services Group provides management, administrative and operating expertise and services to the housekeeping, laundry, linen, facility maintenance and dietary service departments of the health care industry.
They're organized into, and provide our services through, two reportable segments: housekeeping, laundry, linen and other services (“Housekeeping”), and dietary department services (“Dietary”). The operating results from their professional employer organization service contracts are included primarily in their Housekeeping segment as these services include the provision of housekeeping and laundry personnel. The Company’s corporate headquarters provides centralized financial management and administrative services to the Housekeeping and Dietary business segments.
Housekeeping consists of managing the client’s housekeeping department which is principally responsible for the cleaning, disinfecting and sanitizing of patient rooms and common areas of a client’s facility, as well as the laundering and processing of the personal clothing belonging to the facility’s patients.
Dietary consists of managing the client’s dietary department which is principally responsible for food purchasing, meal preparation and providing professional dietitian consulting services, which includes the development of a menu that meets the patient’s dietary needs.
Both segments provide services pursuant to full service agreements. In these agreements, the company is responsible for the management of the department serviced, the employees located at clients’ facilities and the provision of certain supplies. They also provide services on the basis of a management only agreement for a limited number of clients. Agreements with clients typically provide for renewable one year service terms, cancelable by either party upon 30 to 90 days’ notice after an initial period of 60 to 120 days.
Housekeeping
Housekeeping Services. Housekeeping services is the company's largest service sector, representing approximately 44% , or $631,875,000 , of consolidated revenues in 2015. This service involves the management of the client’s housekeeping department responsible for cleaning, disinfecting and sanitizing resident areas in clients’ facilities. In providing services to any given client facility, the company typically hires and trains the employees that were previously employed by such facility. They normally assign an onsite manager to each facility to supervise and train the front line personnel and coordinate housekeeping services with other facility support functions in accordance with the direction provided by the client. Such management personnel also oversee the execution of a variety of quality and cost-control procedures including continuous training and employee evaluation and onsite testing for infection control. The onsite management team also assists the facility in complying with federal, state and local regulations.
Laundry and linen services. Laundry and linen services represented approximately 19% , or $275,477,000 , of consolidated revenues in 2015. Laundry services are under the responsibility of the housekeeping department and involve the laundering and processing of the residents’ personal clothing. Linen services involve providing, laundering and processing of the sheets, pillow cases, blankets, towels, uniforms and assorted linen items used by our clients’ facilities. At facilities that utilize both laundry and linen services, the company normally installs their own equipment. Such installation generally requires an initial capital outlay ranging from $5,000 to $100,000 depending on the size of the facility, installation and construction costs, and the cost of equipment required. The hiring, training and supervision of the employees who perform laundry and linen services are similar to, and performed by the same management personnel who oversee the housekeeping employees located at the respective client facility.
Maintenance and other services. Maintenance services consist of repair and maintenance of laundry equipment, plumbing and electrical systems, as well as carpentry and painting. This service sector’s total revenues of $2,357,000 represented less than 1% of consolidated revenues in 2015.
Laundry installation sales. The company sells laundry installations to their clients, which typically represents the construction and installation of a turn-key operation. They generally offer payment terms, ranging from 36 to 60 months. During the years 2013 through 2015, laundry installation sales were not material to the company's operating results.
(Housekeeping operating performance is significantly impacted by the management of labor costs. Labor accounted for approximately 80% of operating costs incurred at a facility service location, as a percentage of Housekeeping revenues. Changes in employee compensation resulting from legislative or other actions, anticipated staffing levels, and other unforeseen variations in the use of labor at a client service location could result in volatility of these costs. Additionally, the costs of supplies consumed in performing Housekeeping services, including linen costs, are affected by product specific market conditions and therefore are subject to price volatility. Generally, this volatility is influenced by factors outside the company's control and is unpredictable. Where possible, the company tries to obtain fixed pricing from vendors for an extended period of time on certain supplies to mitigate such price volatility.)
PEO services. Through the Company's wholly-owned subsidiary, HCSG Staff Leasing Solutions, LLC, the company enters into client services agreements to become a co-employer of the client's existing workforce, assuming responsibility for payroll, payroll taxes, insurance coverage and certain other administrative functions, while the client maintains physical care, custody and control of their workforce, including the authority to hire and terminate employees. HCSG services include housekeeping and laundry personnel and are provided to clients in the health care industry. During the years 2013 through 2015, operating results from our PEO service contracts were not material to our operating results.
Housekeeping Services. Housekeeping services is the company's largest service sector, representing approximately 44% , or $631,875,000 , of consolidated revenues in 2015. This service involves the management of the client’s housekeeping department responsible for cleaning, disinfecting and sanitizing resident areas in clients’ facilities. In providing services to any given client facility, the company typically hires and trains the employees that were previously employed by such facility. They normally assign an onsite manager to each facility to supervise and train the front line personnel and coordinate housekeeping services with other facility support functions in accordance with the direction provided by the client. Such management personnel also oversee the execution of a variety of quality and cost-control procedures including continuous training and employee evaluation and onsite testing for infection control. The onsite management team also assists the facility in complying with federal, state and local regulations.
Laundry and linen services. Laundry and linen services represented approximately 19% , or $275,477,000 , of consolidated revenues in 2015. Laundry services are under the responsibility of the housekeeping department and involve the laundering and processing of the residents’ personal clothing. Linen services involve providing, laundering and processing of the sheets, pillow cases, blankets, towels, uniforms and assorted linen items used by our clients’ facilities. At facilities that utilize both laundry and linen services, the company normally installs their own equipment. Such installation generally requires an initial capital outlay ranging from $5,000 to $100,000 depending on the size of the facility, installation and construction costs, and the cost of equipment required. The hiring, training and supervision of the employees who perform laundry and linen services are similar to, and performed by the same management personnel who oversee the housekeeping employees located at the respective client facility.
Maintenance and other services. Maintenance services consist of repair and maintenance of laundry equipment, plumbing and electrical systems, as well as carpentry and painting. This service sector’s total revenues of $2,357,000 represented less than 1% of consolidated revenues in 2015.
Laundry installation sales. The company sells laundry installations to their clients, which typically represents the construction and installation of a turn-key operation. They generally offer payment terms, ranging from 36 to 60 months. During the years 2013 through 2015, laundry installation sales were not material to the company's operating results.
(Housekeeping operating performance is significantly impacted by the management of labor costs. Labor accounted for approximately 80% of operating costs incurred at a facility service location, as a percentage of Housekeeping revenues. Changes in employee compensation resulting from legislative or other actions, anticipated staffing levels, and other unforeseen variations in the use of labor at a client service location could result in volatility of these costs. Additionally, the costs of supplies consumed in performing Housekeeping services, including linen costs, are affected by product specific market conditions and therefore are subject to price volatility. Generally, this volatility is influenced by factors outside the company's control and is unpredictable. Where possible, the company tries to obtain fixed pricing from vendors for an extended period of time on certain supplies to mitigate such price volatility.)
PEO services. Through the Company's wholly-owned subsidiary, HCSG Staff Leasing Solutions, LLC, the company enters into client services agreements to become a co-employer of the client's existing workforce, assuming responsibility for payroll, payroll taxes, insurance coverage and certain other administrative functions, while the client maintains physical care, custody and control of their workforce, including the authority to hire and terminate employees. HCSG services include housekeeping and laundry personnel and are provided to clients in the health care industry. During the years 2013 through 2015, operating results from our PEO service contracts were not material to our operating results.
Dietary
Dietary services. Dietary services represented approximately 37%, or $527,140,000, of consolidated revenues in 2015. Dietary consists of managing the client’s dietary department responsible for food purchasing, meal preparation and providing professional dietitian consulting services. These services include the development of a menu that meets the dietary needs of the residents. Onsite management is responsible for all daily dietary department activities, with regular support being provided by a district manager specializing in dietary services, as well as a registered dietitian. The company also offers consulting services to facilities to assist them in cost containment and to promote improvement in their dietary department service operations.
(Dietary operating performance is also impacted by price volatility in labor and supply costs resulting from similar factors discussed above in Housekeeping. The primary difference in impact on Dietary operations from price volatility in costs of labor and food-related supplies is that such costs represent approximately 53% and 39% of Dietary revenues, respectively. In contrast, labor is approximately 80% of operating costs as a percentage of Housekeeping revenues.)
Dietary services. Dietary services represented approximately 37%, or $527,140,000, of consolidated revenues in 2015. Dietary consists of managing the client’s dietary department responsible for food purchasing, meal preparation and providing professional dietitian consulting services. These services include the development of a menu that meets the dietary needs of the residents. Onsite management is responsible for all daily dietary department activities, with regular support being provided by a district manager specializing in dietary services, as well as a registered dietitian. The company also offers consulting services to facilities to assist them in cost containment and to promote improvement in their dietary department service operations.
(Dietary operating performance is also impacted by price volatility in labor and supply costs resulting from similar factors discussed above in Housekeeping. The primary difference in impact on Dietary operations from price volatility in costs of labor and food-related supplies is that such costs represent approximately 53% and 39% of Dietary revenues, respectively. In contrast, labor is approximately 80% of operating costs as a percentage of Housekeeping revenues.)
10 year annual growth rate of 15.78% The Way Forward For Me.
Companies like Healthcare Services Group are a no-brainer for me. This company has been growing their revenue, earnings and dividends for a very long time and that's usually a great predictor of future fundamentals.
Unfortunately that type of predictability has usually resulted in investors bidding up the price of these companies, and Healthcare Services Group is no exception. Looking at the stock chart for this company is very revealing. The company has been expensive for several years and it's recently pull back about 13% and now sits on the lower Bollinger Band on the weekly chart. So that might be a reasonable price to start a position.
I like this company and the business they're in. It's one of those businesses that everyone needs and expects yet very few pay attention to until it's absent. It's also a service that company's don't think a lot about and let contracts that are usually stable and long lasting.
I expect to start a position in this company in the very near future an use dividend reinvestment and the sale of call options to increase my position over time. I don't expect this to become a large portion of my accounts but it should become a steady earner and welcome addition.
Companies like Healthcare Services Group are a no-brainer for me. This company has been growing their revenue, earnings and dividends for a very long time and that's usually a great predictor of future fundamentals.
Unfortunately that type of predictability has usually resulted in investors bidding up the price of these companies, and Healthcare Services Group is no exception. Looking at the stock chart for this company is very revealing. The company has been expensive for several years and it's recently pull back about 13% and now sits on the lower Bollinger Band on the weekly chart. So that might be a reasonable price to start a position.
I like this company and the business they're in. It's one of those businesses that everyone needs and expects yet very few pay attention to until it's absent. It's also a service that company's don't think a lot about and let contracts that are usually stable and long lasting.
I expect to start a position in this company in the very near future an use dividend reinvestment and the sale of call options to increase my position over time. I don't expect this to become a large portion of my accounts but it should become a steady earner and welcome addition.
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