Finding Strength in Senior Living
Nathaniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Our population is aging, how can you benefit?
We are facing a growing trend set to accelerate drastically over the next 20 years. Here in the U.S. its no secret that were not getting any younger. As a result of the baby boom in combination with advancing medical technology, we are seeing great numbers of our citizens living longer than ever. Over the next 30 years we will witness the 80-plus generation more than double to 7.4% or 32 million Americans.
While medical technology has extended life expectancy, the percentage of this population facing chronic conditions remains high. Today, three out of four Americans aged 65 years and older have to cope with health concerns such as cardiovascular disease, diabetes, cancer or chronic respiratory diseases. These conditions put an enormous amount of stress on caregiviers, thus we are see an increasing number of families choose to take advantage of elderly care. In this article I would like to highlight three companies positioned to benefit from a rise in demand for elderly solutions.
The first, Capital Senior Living (NYSE: CSU), an operator of senior living communities throughout the U.S. offers its customers a broad selection of care including indepentant living, assisted living, and memory care. As of the last quarter, the company held 102 properties in its portfolio which support over 13,700 residents. Management has actively targeted aquisition within the industry to spur growth and improve economies of scale. Last year alone, Capital Senior Living closed 13 acquisitions. This year analysts are expecting earnings to rise by 69% therefore helping to justify the company's high valuations. While the company does use substantial leverage to finance its acquisitions, cash flows remain strong and EBITDA is estimated to grow by 54% next year.
Next up, Emeritus (NYSE: ESC), another operator of senior living communities spread across the country. The company owns and operates a portfolio of communities providing services to its residents, including independent living, assisted living, specialized memory care, and, to a lesser extent, skilled nursing care. Emeritus operates 483 senior living communities in 45 states which care for roughly 43,000 customers. Emeritus is positioned well to benefit from rising demand as its current infrastructure is already able to support a drastic increase. Its current facilities have the ability to accept 17% more residents to a limit of 50,100. As a result, the company can focus its efforts of strategic acquisitions in combination with organic growth. Similar to Capital Senior Living, Emeritus brings in strong cash flows and analysts estimate EBITDA will grow by 56.5% next year alone.
Last up, Brookdale Senior Living (NYSE: BKD), the largest of the three using market capitalization. The Company operates in four business segments including retirement centers, assisted living, continuing care retirement communities and management services. Earlier this year, management closed an acquisition of an additional 12 properties to bring its total portfolio up to 871. While the price to earnings multiple may be rich, analysts estimate the company will grow its earnings drastically over the next two years. Next year its expected the company will grow earnings by 115% prior to growing earnings again by 590% the year after. Out of the three, Brookdale is the most diversified option as a result of its size.
All three of these companies are positioned well to take advantage of the graying of the U.S. population. Additionally, I feel the fragmented senior living industry is due for consolidation prior to the drastic demand increases. While these companies use leverage for their operations, cash flows remain strong and consistent, thus decreasing the associated risks.
Nathaniel Matherson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!