Investors in Genesis Health Ventures (NYSE: GHV) couldn’t ask for better. Had you invested $1,000 when the stock was first recommended last year, you’d now have about $1,420. As of late September, not only were the long-term care company’s shares up a hearty 42%, but demographic trends seem to point toward strong results for several years to come. Is all that too good to be true? Not if you look at several factors that seem to bode extremely well for nursing home chains like Genesis.
For one, America is aging. The number of people in the 65-85 age bracket is growing quickly, and the over-85 population is the fastest growing segment, according to Standard & Poor’s. The number of nursing home residents, meanwhile, is expected to rise to 2.2 million by the year 2000 from 1.7 million in 1990, another fact that should help boost revenues for companies like Genesis. The outlook is so strong, in fact, that all eight brokerage analysts covering Genesis raw the stock a “buy” or a “strong buy.” And according to Zacks Investment Research, Wall Street predicts Genesis will grow earnings at an average 23% annually for the next five years, compared with 7.6% for the S&P 500.
Deborah Frazier, the Merrill Lynch financial planner who recommended Genesis in BE’s Stockpile column a year ago when the stock was trading at $26.13 a share, is equally upbeat about the company’s future. Frazier says the brokerage firm still rates Genesis a short- and long-term buy and sees shares rising another 20% to $43-$45 a share in the coming year.
“Consolidation within the long-term care industry will benefit major players like Genesis, whose expanded operations should increase revenues and at the same time drive down costs,” she says.