Ensign CEO Open to New Structure for Home Health Segment

The Ensign Group (Nasdaq: ENSG) had strong financial results in the fourth quarter of 2017, posting its highest adjusted earnings per share in the company’s history, at $0.40.

The Mission Viejo, California-based company’s home health and hospice segment contributed with a 27.5% year-over-year increase in revenue. Ensign might consider spinning off home health into a separate entity in the future to better highlight how this side of the business is performing, CEO and President Christopher Christensen said.

Cornerstone Healthcare Inc. is the home health and hospice operating subsidiary of Ensign, which is primarily known as an operator of skilled nursing and rehabilitation centers. As of Dec. 31, 2017, the company had 181 skilled nursing operations and 46 home health, hospice and home care agencies.


In the fourth quarter of 2017, income for the skilled nursing and transitional care segment totaled $39.9 million, which was a 40.2% year-over-year increase. The home health and hospice segment had income of $5.8 million, which was a 27.7% increase compared with the year prior. In terms of revenue for home health and hospice, its 27.5% year-over-year increase equated to $39.7 million.

Ensign is “coming off some of our largest acquisition years,” and the company is realizing these large increases in revenue and income as new acquisitions have been integrated and begun to perform at a higher level, Christensen said Friday on a call with analysts and investors.

Since 2013, 30 agencies have been added to the home health and hospice segment, according to a form 10-K filed last Thursday with the Securities and Exchange Commission.


In the fourth quarter of 2017, Ensign entered Oklahoma for the first time by acquiring Excell Home Care and Hospice and Excell Private Care Services. Its Cornerstone subsidiary now provides services in 11 states.

Ensign’s share price has risen over the last year, and investors were pleased on Friday—the stock ended the trading day up 7.81%, at $25.41. However, Christensen believes that the share price does not capture the full value of Ensign’s 64 owned real estate assets.

“Historically, our shareholders have received little to no credit for an incredible amount of underlying value in our real estate and that value is again being overlooked,” he said on Friday’s call. He added that “there are many options” that could unlock that real estate value for shareholders.

Should the market not give Ensign enough credit for its home health segment, that too could be restructured.

“… Creating a separate entity that functions alongside us, but where people can see in detail what’s happening with our home health and hospice and assisted living [segments] that are both functioning very, very well … that’s something that we certainly have the obligation to look at and constantly consider,” Christensen said.

Louisville-based insurance giant Humana (NYSE: HUM) recently acquired a stake in the home health arm of Louisville-based Kindred Healthcare (NYSE: KND), suggesting that payors might be interested in Ensign’s home health and hospice operations, RBC Capital Markets analyst Frank Morgan noted on the call.

“Selling them off is not … anything we would be interested in,” Christensen said.

Ensign has executed a spin-off in the past. In 2014, it separated its owned real estate into an independent real estate investment trust (REIT), CareTrust REIT (Nasdaq: CTRE).

In conjunction with announcing its Q4 2017 earnings, Ensign increased its 2018 earnings per share guidance to between $1.80 and $1.87 per diluted share. This is due in part to the recent tax reform package that slashed corporate rates, Christensen noted.

Written by Tim Mullaney

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