Healthcare Services Group’s common shares will need to reach $20 to achieve average annual stock market performance of 9.0% over the next 6 years. Healthcare Services Group’s stock price will need to reach $24 by 2029 to achieve upper quartile performance. What is the market’s view of Healthcare Services Group’s future operating performance as reflected in the current price of $12?
Executive Summary
- Key Healthcare Services Group characteristics: stability, above average financial strength, very low profitability, and very low expected growth. Risk Profile is a big positive influence on Healthcare Services Group’s valuation while Growth is a big negative influence.
- Very low valuation, below market shareholder returns. Current valuation levels are very low relative to the Healthcare Services Group Peer Group. Recent market returns have underperformed the Healthcare Services Group Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, Healthcare Services Group shares should reach a level of $9 by 2029 — an -4.0% per year total shareholder return. A 2029 stock price of $20 would reflect median performance and a price of $24 would be required to reach upper quartile performance.
- Healthcare Services Group’s past growth is very low. Historical growth has been very low relative to the Healthcare Services Group Peer Group and forecasted growth is relatively very low. Revenue Growth, Equity Growth, EPS Growth, and Asset Growth have all lagged. These factors have negatively affected market perceptions of Healthcare Services Group. Healthcare Services Group’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity. Healthcare Services Group’s consensus growth expectations are in line with past growth.
- Asset Turnover is group leading. Pretax Margin, Pretax ROA, and Return on Equity are group lagging. The company has very low cash and will have to work to generate attractive investments and improve valuation.
- Risk Profile has been Healthcare Services Group’s biggest valuation strength. Healthcare Services Group’s risk profile is very favorable. Overall variability has been very low with very low revenue variability, only average E.P.S. variability, and very low stock price volatility. Financial Strength is relatively high and earnings’ expectations are relatively very high. The debt/capital ratio has risen very significantly.
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