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Why Brookdale May Not Be a Safe Bet Despite 34-Month Occupancy Growth
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Brookdale Senior Living Inc. (BKD - Free Report) recently announced that its August 2024 weighted average occupancy grew 130 basis points (bps) from the year-ago level to 78.9%. This marks a new high for the company since it started on the recovery path in March 2021.
The weighted average occupancy for the first and second quarters increased 160 bps year over year each. Third quarter-to-date, the metric rose 140 bps year over year. Greater than pre-pandemic average move-in volumes and lower move-outs are expected to have aided the metric. This positive trend is expected to persist, driven by the projected growth in the senior population.
The company is expected to have witnessed 34 straight months of year-over-year increases in weighted average occupancy. This suggests that it is witnessing continuous growth in occupancy rates, which is expected to result in higher resident fee revenues.
In the second quarter of 2024, resident fee revenues increased 4.2% year over year to $739.7 million, while RevPAR (revenue per available unit) and Adjusted EBITDA grew 6.4% and 20.2% year over year, respectively. However, an elevated expense level and declining interest income affected its second-quarter profits and offset the positives from higher occupancy.
Per BKD’s guidance, third-quarter 2024 RevPAR is expected to grow 6.25-6.75% year over year, and adjusted EBITDA is projected to be in the $90-$95 million range. The increases in RevPAR and occupancy will likely contribute positively to its results. But is this enough to excite investors? Let’s see how the estimates stand for BKD.
Estimates for BKD & Surprise History
The Zacks Consensus Estimate for the third-quarter 2024 bottom line is pegged at a loss of 14 cents per share, indicating a 36.4% improvement from the prior year's figure. It has witnessed no movement in the estimate in the past month. For full-year 2024 and 2025, the consensus mark for loss per share is pegged at 57 cents and 45 cents, respectively.
It's worth noting that BKD has beaten earnings estimates only once in the last four quarters and missed thrice, the average surprise being negative 33.1%.
Brookdale Senior Living Inc. Price and EPS Surprise
Brookdale shares have declined 1.9% in the past three months against the industry’s growth of 21.4%.
Image Source: Zacks Investment Research
BKD’s Headwinds
Rising operating costs due to inflationary challenges in the senior living industry and higher estimated insurance expenses are likely to keep BKD’s margins under pressure.
Its adjusted free cash flow was at a negative $5.5 million in the second quarter of 2024.
Brookdale's Return on Invested Capital of 0.32X is lower than the industry average of 1.56X, suggesting that the company is less efficient at generating returns from its investments compared to its peers. It means the capital-intensive company is not using its capital as effectively to produce profits, which can be a drag for investors looking for companies with strong growth potential.
Also, Brookdale has substantial debt, which can strain its financial health, especially in a high-interest-rate environment. Servicing debt may limit its ability to reinvest in growth opportunities. Its long-term debt to capital of 91.8% is much higher than the industry average of 76.3%.
Given these headwinds, BKD is perceived as a risky bet that investors should exit. It currently carries a Zacks Rank #4 (Sell).
Better Stocks to Consider
Investors can look at some better-ranked stocks in the broader Medical space, like Universal Health Services, Inc. (UHS - Free Report) , Tenet Healthcare Corporation (THC - Free Report) and Quest Diagnostics Incorporated (DGX - Free Report) . While Universal Health and Tenet Healthcare currently sport a Zacks Rank #1 (Strong Buy) each, Quest Diagnostics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Universal Health Services’ 2024 bottom line suggests 51% year-over-year growth. UHS witnessed seven upward estimate revisions over the past 60 days against no movement in the opposite direction. It beat earnings estimates in each of the last four quarters, with the average surprise being 14.6%.
The Zacks Consensus Estimate for Tenet Healthcare’s 2024 bottom line is pegged at $10.70 per share, which indicates 53.3% growth from a year ago. During the past 60 days, THC witnessed eight upward estimate revisions against none in the opposite direction. It beat earnings estimates in each of the last four quarters, with the average surprise being 58.5%.
The Zacks Consensus Estimate for Quest Diagnostics’ 2024 full-year earnings implies a 2.1% increase from the year-ago reported figure. DGX beat earnings estimates in each of the last four quarters, with an average surprise of 3.3%. The consensus mark for its current-year revenues is pegged at $9.6 billion, which indicates a 3.4% year-over-year increase.
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Why Brookdale May Not Be a Safe Bet Despite 34-Month Occupancy Growth
Brookdale Senior Living Inc. (BKD - Free Report) recently announced that its August 2024 weighted average occupancy grew 130 basis points (bps) from the year-ago level to 78.9%. This marks a new high for the company since it started on the recovery path in March 2021.
The weighted average occupancy for the first and second quarters increased 160 bps year over year each. Third quarter-to-date, the metric rose 140 bps year over year. Greater than pre-pandemic average move-in volumes and lower move-outs are expected to have aided the metric. This positive trend is expected to persist, driven by the projected growth in the senior population.
The company is expected to have witnessed 34 straight months of year-over-year increases in weighted average occupancy. This suggests that it is witnessing continuous growth in occupancy rates, which is expected to result in higher resident fee revenues.
In the second quarter of 2024, resident fee revenues increased 4.2% year over year to $739.7 million, while RevPAR (revenue per available unit) and Adjusted EBITDA grew 6.4% and 20.2% year over year, respectively. However, an elevated expense level and declining interest income affected its second-quarter profits and offset the positives from higher occupancy.
Per BKD’s guidance, third-quarter 2024 RevPAR is expected to grow 6.25-6.75% year over year, and adjusted EBITDA is projected to be in the $90-$95 million range. The increases in RevPAR and occupancy will likely contribute positively to its results. But is this enough to excite investors? Let’s see how the estimates stand for BKD.
Estimates for BKD & Surprise History
The Zacks Consensus Estimate for the third-quarter 2024 bottom line is pegged at a loss of 14 cents per share, indicating a 36.4% improvement from the prior year's figure. It has witnessed no movement in the estimate in the past month. For full-year 2024 and 2025, the consensus mark for loss per share is pegged at 57 cents and 45 cents, respectively.
It's worth noting that BKD has beaten earnings estimates only once in the last four quarters and missed thrice, the average surprise being negative 33.1%.
Brookdale Senior Living Inc. Price and EPS Surprise
Brookdale Senior Living Inc. price-eps-surprise | Brookdale Senior Living Inc. Quote
BKD’s Price Performance
Brookdale shares have declined 1.9% in the past three months against the industry’s growth of 21.4%.
BKD’s Headwinds
Rising operating costs due to inflationary challenges in the senior living industry and higher estimated insurance expenses are likely to keep BKD’s margins under pressure.
Its adjusted free cash flow was at a negative $5.5 million in the second quarter of 2024.
Brookdale's Return on Invested Capital of 0.32X is lower than the industry average of 1.56X, suggesting that the company is less efficient at generating returns from its investments compared to its peers. It means the capital-intensive company is not using its capital as effectively to produce profits, which can be a drag for investors looking for companies with strong growth potential.
Also, Brookdale has substantial debt, which can strain its financial health, especially in a high-interest-rate environment. Servicing debt may limit its ability to reinvest in growth opportunities. Its long-term debt to capital of 91.8% is much higher than the industry average of 76.3%.
Given these headwinds, BKD is perceived as a risky bet that investors should exit. It currently carries a Zacks Rank #4 (Sell).
Better Stocks to Consider
Investors can look at some better-ranked stocks in the broader Medical space, like Universal Health Services, Inc. (UHS - Free Report) , Tenet Healthcare Corporation (THC - Free Report) and Quest Diagnostics Incorporated (DGX - Free Report) . While Universal Health and Tenet Healthcare currently sport a Zacks Rank #1 (Strong Buy) each, Quest Diagnostics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Universal Health Services’ 2024 bottom line suggests 51% year-over-year growth. UHS witnessed seven upward estimate revisions over the past 60 days against no movement in the opposite direction. It beat earnings estimates in each of the last four quarters, with the average surprise being 14.6%.
The Zacks Consensus Estimate for Tenet Healthcare’s 2024 bottom line is pegged at $10.70 per share, which indicates 53.3% growth from a year ago. During the past 60 days, THC witnessed eight upward estimate revisions against none in the opposite direction. It beat earnings estimates in each of the last four quarters, with the average surprise being 58.5%.
The Zacks Consensus Estimate for Quest Diagnostics’ 2024 full-year earnings implies a 2.1% increase from the year-ago reported figure. DGX beat earnings estimates in each of the last four quarters, with an average surprise of 3.3%. The consensus mark for its current-year revenues is pegged at $9.6 billion, which indicates a 3.4% year-over-year increase.