The SeniorCare Investor: A Capital Markets Crossroads? -
Seniors Housing Stocks Soar Amid Takeover Rumors
All one has to do is take a look at the stock chart on page 3 to understand what a banner year it has been for seniors housing and care public equity investors. Double-digit returns have been the norm and both sectors have had one company more than double in value as a result of takeover premiums being paid, and they won’t be the last.
The current buzz, other than what is going on with the health care REITs (see story below), is that most every public company is “in play” for a takeover, at least on the seniors housing side of the business. What we are perplexed by is this sudden realization that these stocks are “undervalued,” that they trade below “net asset value,” and that occupancy and margins are at their best in several years. They are surprised by that? Isn’t that what is supposed to happen as a result of an economic downturn, when new development (competition) dries up, management focuses on operations, costs and profitable service additions, and debt costs are at historic lows?
If a company is not doing better today than two or three years ago, and is not taking advantage of low capital costs and buying stabilized properties, then they may want to take another look at their business plan and see what the problem is.
One of the top equity analysts in our sector back in the late 1990s was John Ransom of Raymond James, and if our memory is correct, he and another analyst at the firm were the ones who very publicly sort of blew the cover off the “black box” financing schemes used for development back in the day of unusually excessive overbuilding. They identified the risks (correctly) and what could happen to the developers/providers (correctly again), and suffered from some threatened lawsuits by a few of the most egregious users. Their analysis sent just a few shares tumbling. When the industry went into its post-1990s funk, Mr. Ransom started covering other areas of health care, at least until now. In late September, he initiated coverage of Capital Senior Living (NYSE: CSU) with a “Strong Buy” rating and a price target of $17.00 per share when the shares were trading close to $14.00, reporting that the shares were undervalued and poised for growth. We will forgive Mr. Ransom for calling the shares undervalued today, since he has just rejoined the sector, and if that is the case, they were really undervalued a few months ago when they were trading below $10.00 per share. Regardless, welcome back John..............Want to read more? Click here for a free trial to The SeniorCare Investor and download the current issue today