Assisted Living Concepts: Cheap Again?

May 19, 2008

May 19, 2008
After a nearly 35% jump in its stock price since hitting a low of $5.46 per share in late March, the share price of Assisted Living Concepts has drifted down again to about $6.35, and today is about 13% lower (or $1.00 lower) than the closing price on April 30. The two most probable reasons for the price decline are that it went up too high too fast, and first quarter occupancy numbers were disappointing and did not support that 35% rally. 

The timing of the decision to convert Medicaid units to private pay units was horrible, but hindsight is too easy. Overall same-facility occupancy was at 71.1% at the end of March, compared with 83.7% a year ago, and same-facility private-pay occupied units were down 3.2% from December 31, 2007. That is a trend that must stop in order to stabilize overall occupancy, but there do not seem to be any answers yet. Management believes this will turn around by the second half of the year, but is wisely not making any promises. Meanwhile, the company's EBITDAR margin was a high 30.3% in the first quarter, compared with 29.2% in the year-ago quarter, even though overall occupancy had dropped by a full 12 percentage points. Cost-control and a few acquisitions seemed to drive this number.

When, or if, the share price drops below $6.00 again, or even lower for those lucky speculators who want to jump in again, investors should take another look, keeping one eye on what is happening with occupancy levels in general, and the other eye on the company's private pay units. You can also tune in to our audio conference on June 17 where several equity analysts will be addressing the state of the market and where the best buys are today.

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