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Punt on This Small-Cap Health Care Play – FVE

Jan 04, 2022 | Team Kalkine
Punt on This Small-Cap Health Care Play – FVE

Five Star Senior Living Inc.

FVE Details

Five Star Senior Living Inc. (NASDAQ: FVE) is a provider of senior living, rehabilitation, and wellness services in the United States. Its operating segments are 1) Senior Living, which includes Independent Living Communities (ILs), Assisted Living Communities (ALs), and Continued Care Retirement Communities (CCRCs), and 2) Rehabilitation and Wellness (R&W), which includes physical, occupational, inpatient and outpatient clinics, and fitness services.

Latest News:

  • Recent Collaborations: On December 16, 2021, FVE announced a partnership with DispatchHealth, a leading supplier of in-home medical services, to deliver on-demand acute care to residents in Five Star communities who live in independent living, assisted living, or memory care. Treatment for viral or bacterial infections, asthma attacks, wounds, bed sores and pressure ulcers, and small fractures and sprains are among the services to be offered.

Previously on December 03, 2021, Compass Community Living, a division of Compass Group, a global leader in food and support services, has agreed to take over administration of dining services operations at all of FVE's senior living communities. The partnership strengthens FVE's commitment to providing unique, customer-centric experiences.

  • Exiting the Skilled Nursing Business: On November 18, 2021, FVE stated that it has completed the transition of operations for 107 senior living homes owned by Diversified Healthcare Trust (DHC) and has exited the skilled nursing industry completely. DHC owns 120 senior housing communities, which FVE continues to administer.

Q3FY21 Results:

  • Double-Digit Decline in Revenues: FVE reported a decrease of 23.53% in total revenues to USD 225.83 million in Q3FY21 (ended September 30, 2021) compared to USD 295.32 million in Q3FY20, attributable to a decrease in revenues across all segments.
  • Incurred Net Losses: FVE reported a net loss of USD 10.20 million in Q3FY21 vs. a net income of USD 3.72 million in Q3FY20.
  • Strong Balance Sheet: As of September 30, 2021, the company had cash and cash equivalents (including short term investments) of USD 99.69 million and total debt of USD 11.01 million.

Key Risks: 

  • Dependence on DHC: FVE is heavily reliant on its relationship with DHC. For example, DHC controlled 159 of the 179 senior care homes run by FVE as of September 30, 2021. Accordingly, the termination of its management agreements with DHC, or a significant change in the contractual terms, might have a materially adverse impact on its business and financial situation.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation 

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.