Following Post-Spinoff Comedown, The Pennant Group May Be Poised For Comeback

Since its spinoff from The Ensign Group (Nasdaq: ENSG), The Pennant Group Inc. (Nasdaq: PNTG) has yet to unlock the upside of its home health and hospice businesses.

That may soon change, according to both industry insiders and its current president and future CEO – Brent Guerisoli – who told Home Health Care News he is excited about the prospects of the company’s home health business.

Pennant came out of the spinoff from Ensign with momentum in both its home health and hospice businesses.


“This was reflected in substantial revenue and earnings upside relative to sell-side analyst expectations in its first few quarters as a public company, driven by strong organic growth, compelling operating execution and converting on an attractive [home health and hospice] deal pipeline,” Scott Fidel, a managing director at the private investment banking company Stephens, told HHCN.

The Eagle, Idaho-based Pennant is a holding company of independent operating subsidiaries, with a network that includes 89 home health and hospice agencies and 48 senior living communities located throughout 14 states.

Still, Pennant was unable to latch onto its initial success. Like most of its industry peers, the company faced challenges that were brought on by the pandemic.


“Unfortunately, as the pandemic became more embedded in Pennant’s core geographic markets, this created operational challenges for the company, particularly as it relates to the integration of recently acquired [home health and hospice] assets, which tended to have less developed operating models and profit margins than Pennant’s more mature operations,” Fidel said.

Last year, the company’s leadership opened up about the many headwinds Pennant has been up against.

In addition to COVID-19 related disruption, Pennant’s leadership revamp of its senior living segment, high volume of home health and hospice deals and its focus and investment in new business ventures were all contributing factors in the company’s inability to operate at the previously set standard.

But in 2022, Pennant began to show improved business performance across its home health, hospice and senior living segments. And more recently, the company’s stock has been performing well.

“Investors have been betting on The Pennant Group because of its solid estimate revisions, as evident from the stock’s 25.2% gain over the past four weeks,” Zacks Equity Research wrote earlier this month. “As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.”

Earlier this month, Pennant announced that Daniel Walker, the company’s CEO, would step down from the role. Guerisoli will officially take the helm on Aug. 1.

As Guerisoli steps into his new role as CEO, executing Pennant’s strategy of purchasing community-driven agencies with strong ties to their specific markets, and empowering local leaders, remains as important as ever.

“A lot of what we’re doing now is creating more structure around the frameworks, around their systems, around their processes,” Guerisoli told HHCN. “That foundation is so critical because that’s what we build from. If we can do that in the right way, we are going to create a significant opportunity for future partners that are going to join the organization, and future patients and residents.”

Guerisoli is the first to admit that the home health operating environment has been tough, and while some challenges have begun to slightly alleviate, many remain. Those include labor pressures, inflation and the potential impact of the proposed payment rule.

“The proposed home health rule issued by CMS has cast a dark cloud of uncertainty around the outlook for the broader Medicare home health industry in 2023,” Fidel said. “As a result, it will be critical to see whether CMS substantially moderates its draconian proposal when it issues the final regulation later this year, to help us ascertain whether Pennant will be able to unlock more of the embedded upside from its home health and hospice businesses for its shareholders in 2023 and beyond.”

That said, Guerisoli has zeroed-in on a number of potential tailwinds.

“Really what we’re seeing is that those operators that understand how to create real quality outcomes, in an efficient manner, are going to be rewarded [under HHVBP],” he said. “I think we’re transitioning to the right model. This is what we’ve needed to do for a long time.”

Broadly, Guerisoli believes that changes in reimbursement creates pressure for providers to perform. This is, in turn, a win for companies like Pennant.

“Because of some of those operators that maybe aren’t as strong — there’s going to be opportunities for organizations like ours to really grow in a meaningful way,” he said. “When we got started back in 2010, we saw successive reimbursement cuts for years. In that same period of time, we grew significantly.”

As far as falling short of investor expectations in the past, Guerisoli acknowledged they don’t always paint the full picture.

“Investor expectations, sometimes that can be a tricky discussion,” he said. “What I mean by that is, we’re focused on the long-term. We’re not going to grow really quickly because we’re trying to meet some sort of investor expectation or demand. We know who we are, we know what our model is and who our shareholders are. I mentioned building that foundation, that’s what we’re doing.”

It’s knowing and leaning into its business model that will be the key to the company’s turnaround, according to Guerisoli.

“Because of the preparations that have been taking place over the course of the last several years, we’re in a position that going forward we’re going to have significant opportunity,” he said. “Then you can couple that with what appears to be a strong, opportunistic acquisition landscape.”

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