An investment in The Ensign Group is an investment in the demographic trends occurring throughout the US and particularly the Southwestern US. As the population ages and requires increased medical care, the demand on the post acute care industry will dramatically increase. The Ensign Group appears to be positioned to take advantage of these trends toward skilled nursing care facilities, assisted living centers, and home healthcare.
The Ensign Group, Inc. provides health care services in the post-acute care continuum, urgent care center, and mobile ancillary businesses in the United States. It operates through two segments, Transitional, Skilled and Assisted Living Services; and Home Health and Hospice Services. The company offers various healthcare services, such as skilled nursing, assisted living, home health and hospice, mobile ancillary, and urgent care services. Its skilled nursing facilities provide a range of medical, nursing, rehabilitative, and pharmacy services, as well as routine services comprising daily dietary, social, and recreational services to Medicaid, private pay, managed care, and Medicare payors; and assisted and independent living facilities offer residential accommodations, activities, meals, security, housekeeping, and assistance in the activities of daily living to seniors who are independent. The company’s home health care services include nursing, speech, occupational and physical therapists, medical social workers, and certified home health aide services; and hospice care services, such as physical, spiritual, and psychosocial needs, including palliative and clinical care, education, and counseling for terminally ill individuals and their families. Its urgent care centers provide daily access to healthcare for minor injuries and illnesses, including X-ray and lab services; and mobile diagnostic services, including digital X-ray, ultrasound, electrocardiograms, patient transportation, ankle-brachial index, and phlebotomy services to people in their homes or at long-term care facilities. As of February 10, 2016, the company had 187 healthcare facilities, 14 hospice agencies, 15 home health agencies, 3 home care businesses, and 17 urgent care clinics in California, Arizona, Texas, Washington, Utah, Idaho, Colorado, Nevada, Iowa, Nebraska, Oregon, Wisconsin, Kansas, and South Carolina. The company was founded in 1999 and is based in Mission Viejo, California.
(Summary) (Company) (Chart)
| 16 October 2016 Price $19.66 1yr Target $24.40 Analysts 5 Dividend $0.16 Payout Ratio 17.77% 1yr Cap Gain 24.10% Yield 0.81% 1yr Tot Return 24.91% P/E 21.77 PEG 1.45 Beta 0.89 | EPS (ttm) $0.90 EPS next yr $1.63 Forward P/E 12.06 EPS next 5yr 15.00% 1yr Price Support $24.45 Market Cap $999.91 Mil Revenues $1.52 Bil Earnings $47.60 Mil Profit Margin 3.09% Quick Ratio 1.60 Current Ratio 1.60 Debt/Equity 0.44 | 1yr RevGR 30.57% 3yr RevGR 17.48% 5yr RevGR 15.62% 1yr EarnGR 35.89% 3yr EarnGR 4.59% 5yr EarnGR 2.00% 1yr DivGR 19.68% 3yr DivGR 29.77% 5yr DivGR 21.25% ROA 6.30% ROE 11.40% |
Company Overview
The Ensign Group is a provider of healthcare services across the post-acute care continuum, as well as urgent care centers and mobile ancillary businesses located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oregon, South Carolina, Texas, Utah, Washington and Wisconsin. Their operating subsidiaries provide a broad spectrum of skilled nursing, assisted living, home health and hospice, mobile ancillary and urgent care services. As of December 31, 2015, the company offered skilled nursing, assisted living and rehabilitative care services through 186 skilled nursing and assisted living facilities across 13 states. Their home health and hospice business provided home health, hospice and home care services from 32 agencies across nine states. Their 17 urgent care centers and mobile ancillary operations are located in Arizona, Colorado, Utah and Washington.
The company's organizational structure is centered upon local leadership. The company believes the organizational structure, which empowers leaders and staff at the local level, is unique within the healthcare services industry. Each of their operations is led by individuals who are responsible for key operational decisions at their operations. Leaders and staff are trained and motivated to pursue superior clinical outcomes, high patient and family satisfaction, operating efficiencies and financial performance at their operations.
The company encourages and empowers their leaders and staff to make their operation the “operation of choice” in the community it serves. Leaders and staff are generally authorized to discern and address the unique needs and priorities of healthcare professionals, customers and other stakeholders in the local community or market, and then work to create a superior service offering for, and reputation in, that particular community or market. The company believes that their localized approach encourages prospective customers and referral sources to choose or recommend the operation. In addition, leaders are enabled and motivated to share real-time operating data and otherwise benchmark clinical and operational performance against their peers in order to improve clinical care, enhance patient satisfaction and augment operational efficiencies, promoting the sharing of best practices.
The company views healthcare services primarily as a local business, influenced by personal relationships and community reputation. They believe success is largely dependent upon an ability to build strong relationships with key stakeholders from the local healthcare community, based upon a solid foundation of reliably superior care. Accordingly, the brand strategy is focused on encouraging the leaders and staff of each operation to focus on clinical excellence and to promote their operation independently within the local community.
Much of the company's historical growth can be attributed to an expertise in acquiring real estate or leasing both under-performing and performing post-acute care operations and transforming them into market leaders in clinical quality, staff competency, employee loyalty and financial performance. They have also invested in new business lines that are complementary to their existing businesses, such as urgent care centers and ancillary services. The company plans to continue to grow revenue and earnings by:
The Ensign Group is a provider of healthcare services across the post-acute care continuum, as well as urgent care centers and mobile ancillary businesses located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, Oregon, South Carolina, Texas, Utah, Washington and Wisconsin. Their operating subsidiaries provide a broad spectrum of skilled nursing, assisted living, home health and hospice, mobile ancillary and urgent care services. As of December 31, 2015, the company offered skilled nursing, assisted living and rehabilitative care services through 186 skilled nursing and assisted living facilities across 13 states. Their home health and hospice business provided home health, hospice and home care services from 32 agencies across nine states. Their 17 urgent care centers and mobile ancillary operations are located in Arizona, Colorado, Utah and Washington.
The company's organizational structure is centered upon local leadership. The company believes the organizational structure, which empowers leaders and staff at the local level, is unique within the healthcare services industry. Each of their operations is led by individuals who are responsible for key operational decisions at their operations. Leaders and staff are trained and motivated to pursue superior clinical outcomes, high patient and family satisfaction, operating efficiencies and financial performance at their operations.
The company encourages and empowers their leaders and staff to make their operation the “operation of choice” in the community it serves. Leaders and staff are generally authorized to discern and address the unique needs and priorities of healthcare professionals, customers and other stakeholders in the local community or market, and then work to create a superior service offering for, and reputation in, that particular community or market. The company believes that their localized approach encourages prospective customers and referral sources to choose or recommend the operation. In addition, leaders are enabled and motivated to share real-time operating data and otherwise benchmark clinical and operational performance against their peers in order to improve clinical care, enhance patient satisfaction and augment operational efficiencies, promoting the sharing of best practices.
The company views healthcare services primarily as a local business, influenced by personal relationships and community reputation. They believe success is largely dependent upon an ability to build strong relationships with key stakeholders from the local healthcare community, based upon a solid foundation of reliably superior care. Accordingly, the brand strategy is focused on encouraging the leaders and staff of each operation to focus on clinical excellence and to promote their operation independently within the local community.
Much of the company's historical growth can be attributed to an expertise in acquiring real estate or leasing both under-performing and performing post-acute care operations and transforming them into market leaders in clinical quality, staff competency, employee loyalty and financial performance. They have also invested in new business lines that are complementary to their existing businesses, such as urgent care centers and ancillary services. The company plans to continue to grow revenue and earnings by:
- continuing to grow the talent base and develop future leaders;
- increasing the overall percentage or “mix” of higher-acuity patients;
- focusing on organic growth and internal operating efficiencies;
- continuing to acquire additional operations in existing and new markets;
- expanding and renovating our existing operations;
- constructing new facilities in existing and new markets, and
- strategically investing in and integrating other post-acute care healthcare businesses.
Segments
Skilled Nursing Operations. As of December 31, 2015, the company's skilled nursing companies provided skilled nursing care at 146 operations, with 15,099 operational beds, in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin. Through the skilled nursing operations, the company provides short stay patients and long stay patients with a full range of medical, nursing, rehabilitative, pharmacy and routine services, including daily dietary, social and recreational services. The company generates revenue from Medicaid, private pay, managed care and Medicare payors. During the year ended December 31, 2015, approximately 44.0% and 29.5% of the skilled nursing revenue was derived from Medicaid and Medicare programs.
Assisted and Independent Living Operations. The company provides assisted as well as independent living services at 55 operations, of which 15 are located on the same site as the skilled nursing care operations. As of December 31, 2015, the company had 4,554 units. The assisted living companies located in Arizona, California, Colorado, Idaho, Kansas, Nebraska, Nevada, Texas, Utah, Washington and Wisconsin, provide residential accommodations, activities, meals, security, housekeeping and assistance in the activities of daily living to seniors who are independent or who require some support, but not the level of nursing care provided in a skilled nursing operation. The independent living units are non-licensed independent living apartments in which residents are independent and require no support with the activities of daily living. The company generates revenue at these units primarily from private pay sources, with a small portion earned from Medicaid or other state-specific programs. During the year ended December 31, 2015, approximately 92.3% of assisted and independent living revenue was derived from private pay sources.
Home Health. As of December 31, 2015, the company provided home health care services in Arizona, California, Colorado, Idaho, Iowa, Oregon, Texas, Utah and Washington. Home health care services generally consist of providing some combination of nursing, speech, occupational and physical therapists, medical social workers and certified home health aide services. Home health care is often a cost-effective solution for patients, and can also increase their quality of life and allow them to receive quality medical care in the comfort and convenience of a familiar setting. The company derives the majority of their home health revenue from Medicare and managed care organizations. During the year ended December 31, 2015, approximately 55.9% of our home health revenue were derived from Medicare.
Hospice. As of December 31, 2015, the company provided hospice care services in Arizona, California, Colorado, Idaho, Texas, Utah and Washington. Hospice services focus on the physical, spiritual and psychosocial needs of terminally ill individuals and their families, and consists primarily of palliative and clinical care, education and counseling. The company derives the majority of their hospice revenue from Medicare reimbursement. During the year ended December 31, 2015, approximately 85.5% of our hospice revenue was derived from Medicare.
Other. In addition, as of December 31, 2015, the company operated 17 urgent care clinics and held majority membership interest of mobile ancillary operations located in Arizona, Colorado, Washington and Utah. Their urgent care centers provided daily access to healthcare for minor injuries and illnesses, including x-ray and lab services, all from convenient neighborhood locations with no appointments.
New Business. The company has invested in and is exploring new business lines that are complementary to their existing transitional, skilled and assisted living services and home health and hospice businesses. These new business lines consist of mobile ancillary services, including digital x-ray, ultrasound, electrocardiograms, patient transportation, ankle-brachial index, and phlebotomy services to people in their homes or at long-term care facilities. To date these businesses are not meaningful contributors to operating results.
Skilled Nursing Operations. As of December 31, 2015, the company's skilled nursing companies provided skilled nursing care at 146 operations, with 15,099 operational beds, in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin. Through the skilled nursing operations, the company provides short stay patients and long stay patients with a full range of medical, nursing, rehabilitative, pharmacy and routine services, including daily dietary, social and recreational services. The company generates revenue from Medicaid, private pay, managed care and Medicare payors. During the year ended December 31, 2015, approximately 44.0% and 29.5% of the skilled nursing revenue was derived from Medicaid and Medicare programs.
Assisted and Independent Living Operations. The company provides assisted as well as independent living services at 55 operations, of which 15 are located on the same site as the skilled nursing care operations. As of December 31, 2015, the company had 4,554 units. The assisted living companies located in Arizona, California, Colorado, Idaho, Kansas, Nebraska, Nevada, Texas, Utah, Washington and Wisconsin, provide residential accommodations, activities, meals, security, housekeeping and assistance in the activities of daily living to seniors who are independent or who require some support, but not the level of nursing care provided in a skilled nursing operation. The independent living units are non-licensed independent living apartments in which residents are independent and require no support with the activities of daily living. The company generates revenue at these units primarily from private pay sources, with a small portion earned from Medicaid or other state-specific programs. During the year ended December 31, 2015, approximately 92.3% of assisted and independent living revenue was derived from private pay sources.
Home Health. As of December 31, 2015, the company provided home health care services in Arizona, California, Colorado, Idaho, Iowa, Oregon, Texas, Utah and Washington. Home health care services generally consist of providing some combination of nursing, speech, occupational and physical therapists, medical social workers and certified home health aide services. Home health care is often a cost-effective solution for patients, and can also increase their quality of life and allow them to receive quality medical care in the comfort and convenience of a familiar setting. The company derives the majority of their home health revenue from Medicare and managed care organizations. During the year ended December 31, 2015, approximately 55.9% of our home health revenue were derived from Medicare.
Hospice. As of December 31, 2015, the company provided hospice care services in Arizona, California, Colorado, Idaho, Texas, Utah and Washington. Hospice services focus on the physical, spiritual and psychosocial needs of terminally ill individuals and their families, and consists primarily of palliative and clinical care, education and counseling. The company derives the majority of their hospice revenue from Medicare reimbursement. During the year ended December 31, 2015, approximately 85.5% of our hospice revenue was derived from Medicare.
Other. In addition, as of December 31, 2015, the company operated 17 urgent care clinics and held majority membership interest of mobile ancillary operations located in Arizona, Colorado, Washington and Utah. Their urgent care centers provided daily access to healthcare for minor injuries and illnesses, including x-ray and lab services, all from convenient neighborhood locations with no appointments.
New Business. The company has invested in and is exploring new business lines that are complementary to their existing transitional, skilled and assisted living services and home health and hospice businesses. These new business lines consist of mobile ancillary services, including digital x-ray, ultrasound, electrocardiograms, patient transportation, ankle-brachial index, and phlebotomy services to people in their homes or at long-term care facilities. To date these businesses are not meaningful contributors to operating results.
Future Growth
The Ensign Group has an established track record of successful acquisitions. Much of the company's historical growth can be attributed to acquiring real estate or leasing both under-performing and performing post-acute care operations and transforming them into market leaders in clinical quality, staff competency, employee loyalty and financial performance. With each acquisition, the company can apply their core operating expertise to improve those operations, both clinically and financially.
In the last few years, acquisition activity accelerated, allowing the company to add 84 facilities between January 1, 2012 and December 31, 2015. From January 1, 2008 through December 31, 2015, The Ensign Group acquired 125 facilities adding 12,548 operational beds to their operating subsidiaries.
During the year ended December 31, 2015, the company continued to expand operations with the addition of 50 stand-alone skilled nursing and assisted living facilities, seven home health, hospice and home care agencies, and three urgent care centers. In addition, the company has invested in new business lines that are complementary to their existing TSA services and home health and hospice businesses.
The Ensign Group also established a New Market CEO program in 2006 to evaluate a target market, develop a comprehensive business plan, and relocate to the target market to find talent and to connect with other providers, regulators and the healthcare community in that market. The goal ultimately is to acquire facilities and establish an operating platform for future growth. Since its beginning this program has expanded to broaden the company's reach into other lines of business closely related to the skilled nursing industry through a New Ventures program. This program took the company into home healthcare. The New Ventures program encourages facility CEOs to evaluate service offerings with the goal of establishing an operating platform in new markets. The Ensign Group believes that this program will not only continue to drive growth, but will also provide a valuable training ground for the next generation of leaders, who will have experienced the challenges of growing and operating a new business.
The Ensign Group has an established track record of successful acquisitions. Much of the company's historical growth can be attributed to acquiring real estate or leasing both under-performing and performing post-acute care operations and transforming them into market leaders in clinical quality, staff competency, employee loyalty and financial performance. With each acquisition, the company can apply their core operating expertise to improve those operations, both clinically and financially.
In the last few years, acquisition activity accelerated, allowing the company to add 84 facilities between January 1, 2012 and December 31, 2015. From January 1, 2008 through December 31, 2015, The Ensign Group acquired 125 facilities adding 12,548 operational beds to their operating subsidiaries.
During the year ended December 31, 2015, the company continued to expand operations with the addition of 50 stand-alone skilled nursing and assisted living facilities, seven home health, hospice and home care agencies, and three urgent care centers. In addition, the company has invested in new business lines that are complementary to their existing TSA services and home health and hospice businesses.
The Ensign Group also established a New Market CEO program in 2006 to evaluate a target market, develop a comprehensive business plan, and relocate to the target market to find talent and to connect with other providers, regulators and the healthcare community in that market. The goal ultimately is to acquire facilities and establish an operating platform for future growth. Since its beginning this program has expanded to broaden the company's reach into other lines of business closely related to the skilled nursing industry through a New Ventures program. This program took the company into home healthcare. The New Ventures program encourages facility CEOs to evaluate service offerings with the goal of establishing an operating platform in new markets. The Ensign Group believes that this program will not only continue to drive growth, but will also provide a valuable training ground for the next generation of leaders, who will have experienced the challenges of growing and operating a new business.
Industry Trends and the Future
The post-acute care industry has evolved to meet the growing demand for post-acute and custodial healthcare services generated by an aging population, increasing life expectancies and the trend toward shifting of patient care to lower cost settings. The industry has evolved in recent years which has led to a number of favorable improvements in the industry, as described below:
- Shift of Patient Care to Lower Cost Alternatives. The growth of the senior population in the US continues to increase healthcare costs, often faster than the available funding from government-sponsored healthcare programs. In response, federal and state governments have adopted cost-containment measures that encourage the treatment of patients in more cost-effective settings such as skilled nursing facilities, for which the staffing requirements and associated costs are often significantly lower than acute care hospitals, inpatient rehabilitation facilities and other post-acute care settings. As a result, skilled nursing facilities are generally serving a larger population of higher-acuity patients than in the past.
- Significant Acquisition and Consolidation Opportunities. The skilled nursing industry is large and highly fragmented, characterized predominantly by numerous local and regional providers. This fragmentation will provide significant acquisition and consolidation opportunities for the industry.
- Improving Supply and Demand Balance. The number of skilled nursing facilities has declined modestly over the past several years. This supply and demand balance in the skilled nursing industry will continue to improve due to the shift of patient care to lower cost settings, an aging population and increasing life expectancies.
- Increased Demand Driven by Aging Populations and Increased Life Expectancy. As life expectancy continues to increase in the US and seniors account for a higher percentage of the total US population, the overall demand for skilled nursing services will increase. At present, the primary market demographic for skilled nursing services is primarily individuals age 75 and older. According to the 2010 US Census, there were over 40 million people in the United States in 2010 that are over 65 years old. The 2010 U.S. Census estimates this group is one of the fastest growing segments of the population and is expected to more than double between 2000 and 2030.
- Accountable Care Organizations and Reimbursement Reform. A significant goal of federal health care reform is to transform the delivery of health care by changing reimbursement for health care services to hold providers accountable for the cost and quality of care provided. Medicare and many commercial third party mayors are implementing Accountable Care Organization (ACO) models in which groups of providers share in the benefit and risk of providing care to an assigned group of individuals. Other reimbursement methodology reforms include value-based purchasing, in which a portion of provider reimbursement is redistributed based on relative performance on designated economic, clinical quality, and patient satisfaction metrics. In addition, CMS is implementing demonstration and mandatory programs to bundle acute care and post-acute care reimbursement to hold providers accountable for costs across a broader continuum of care. These reimbursement methodologies and similar programs are likely to continue and expand, both in public and commercial health plans. On January 26, 2015, CMS announced its goal to have 30% of Medicare payments for quality and value through alternative payment models such as ACOs or bundled payments by 2016 and up to 50% by the end of 2018. Providers who respond successfully to these trends and are able to deliver quality care at lower cost are likely to benefit financially.
The post-acute industry has been and will continue to be impacted by several other trends. The use of long-term care insurance is increasing among seniors as a means of planning for the costs of skilled nursing services. In addition, as a result of increased mobility in society, reduction of average family size, and the increased number of two-wage earner couples, more seniors are looking for alternatives outside the family for their care.
My Perspective
I don't have any positions in the long term care industry but it seems like an obvious place to invest for many of the reasons cited above. It's also a fragmented industry that's going to consolidate in the years ahead so there's going to be a lot of winners and losers. I think The Ensign Group is going to be one of the winners. There will be others and I intend to dig deeper into this industry in the weeks and months ahead, but this is a great company to start my research.
One of the things that's not particularly appealing about this stock is the dividend. It's less than one per cent but at least it's growing at a pretty fast clip. On the plus side, I do believe that the stock can grow 25% this year and I expect it to grow 15% per year going forward.
I intend to start a position in this company in the near future (I'd like these shares at a price less than $19) and then let it grow naturally through dividend reinvestment and the sale of options (although the options are sold on a monthly basis only and the volume is very low). This could end up being a very nice addition to the portfolio.
I don't have any positions in the long term care industry but it seems like an obvious place to invest for many of the reasons cited above. It's also a fragmented industry that's going to consolidate in the years ahead so there's going to be a lot of winners and losers. I think The Ensign Group is going to be one of the winners. There will be others and I intend to dig deeper into this industry in the weeks and months ahead, but this is a great company to start my research.
One of the things that's not particularly appealing about this stock is the dividend. It's less than one per cent but at least it's growing at a pretty fast clip. On the plus side, I do believe that the stock can grow 25% this year and I expect it to grow 15% per year going forward.
I intend to start a position in this company in the near future (I'd like these shares at a price less than $19) and then let it grow naturally through dividend reinvestment and the sale of options (although the options are sold on a monthly basis only and the volume is very low). This could end up being a very nice addition to the portfolio.
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