When a Two-Star Rating Is a Buy

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Brookdale Senior Living (NYSE: BKD) rated only two stars out of a possible five from employee reviews in the career and jobs community website Glassdoor. Nonetheless, this so-so rating shouldn’t dampen investor interest in this company, the largest operator of communities for seniors in the U.S. For all we know, some of the disparaging employee reviews on Brookdale may have come from disgruntled caregivers.

What really matters, as far as Brookdale is concerned, is that several analysts have recently given superior ratings on Brookdale. These ratings, which range from outperform to buy, see price targets of up to $33 on the company’s shares that have been trading on a 52-week range of between $14.99 and $29.25. Notably, fund managers like Fortress Investment Group, JAT Capital, and Carlson Capital are keen on Brookdale. Fortress, for instance, has 10 percent of its 13F holdings accounted for by Brookdale.

Revenue gains beat analysts’ forecast

The bullish stance on Brookdale sidesteps the adjusted 20-cent EPS loss Brookdale reported for the 2012 fourth quarter, which missed analysts’ expectations of a 7-cent loss. More telling was that the company beat analysts’ revenue prediction. Brookdale posted a 4.13 percent revenue gain to $699.75 million, beating the average market estimate of $699.55 million for the quarter.

Improvements on average occupancy and monthly revenue per unit in Brookdale’s 645 communities across the U.S. accounted for the increase in the company’s revenues during the quarter. This advance sure is a positive sign of the high growth potential that shareholders can expect to draw out of the company. Brookdale shares rose 3.53 percent to $27.83 in post-market trading Feb. 12 following the release of the fourth quarter results.

The day’s gain was likewise a warm welcome to Andrew Smith, whose appointment as new Brookdale CEO was announced following the quarterly report. Smith replaces the retiring Bill Sheriff who leaves a company well-positioned to pursue 2013 growth opportunities.

Where baby boomer retirement echoes resound

Demographics favor Brookdale’s future growth as more of the estimated 70 million U.S. baby boomers born between 1946 and 1964 go into retirement in the coming years. As you may have already deduced, this means a continually rising market demand for the company’s senior living facilities across the US. Already installed as the most regionally diversified operator of communities for seniors, Brookdale remains firm on further enlarging its footprint through acquisitions. This January, for instance, the company announced acquisitions of 12 communities having a total of 871 units. Last year, it also acquired the real estate interests of several communities which it previously leased or managed.

Another player in housing for the elderly, Capital Senior Living (NYSE: CSU), is on an acquisition binge as well lately. This January, it bought for $10.83 million a health care property in Ohio. Last year, it had 16 acquisitions of senior living communities. With these new acquisitions, Capital Senior Living now is estimated to have 101 communities across the U.S. capable of serving 13,600 residents.

In terms of size and reach, however, Brookdale remains superior with its growing suite of 645 senior communities with an estimated 60,000 residents in various regions of the U.S. Not even the PulteGroup (NYSE: PHM), one of the largest US homebuilders which also has an interest in developing senior communities, can match Brookdale in the senior housing industry subsector. Del Webb, the Pulte unit specializing in retirement communities, only has 59 of such properties across the US. Notably though, the PulteGroup is more focused on developing move-up homes and residences for first-time homeowners.

A Florida gauge in market dominance

In closing, the presence of Brookdale in Florida, one of the Sunbelt States winning in the U.S. migration game and as a retirement destination, best illustrates at a glance its market dominance among its ilk. Brookdale, all told, has 107 retirement communities both for assisted and independent living in the Sunshine State. In stark contrast, Pulte’s Del Webb has just seven while Capital Senior trails with only one.


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