Five Star Senior Living Inc.

FVE Details

Five Star Senior Living Inc. (NASDAQ: FVE) is a company that provides senior living, rehabilitation, and wellness services in the United States. It operates under two segments: 1) Senior Living, which includes Independent Living Communities (ILs), Assisted Living Communities (ALs), Continued Care Retirement Communities (CCRCs), and Skilled Nursing Facilities (SNFs), and 2) Rehabilitation and Wellness (R&W), which includes physical, occupational, inpatient and outpatient clinics, and fitness services.

Latest News:

• Progress on the Strategic Plan: On September 13, 2021, FVE announced a 320 basis point increase in August over July month-end occupancy in its Owned Communities. It also noted that the August month-end occupancy was 74.7% in the 120 communities it continues to manage for Diversified Healthcare Trust (DHC), a healthcare Real Estate Investment Trust (REIT), an increase of roughly 100 basis points above the July month-end occupancy. In addition, FVE stated that it has completed 62 of the 108 planned migrations to other third-party operators and expects to finish the transition of the remaining communities by year-end.

H1FY21 Results:

• Decline in Revenues: FVE reported a slight decrease of 9.41% in total revenues to USD 527.72 million during H1FY21 (ended June 30, 2021) compared to USD 582.53 million during H1FY20, owing to a decrease in revenues across all segments.
• Drop in Net Losses: FVE recorded a decline in net losses to USD 8.99 million during H1FY21 vs. 14.21 million during H1FY20 due to nil losses on termination of leases.
• Strong Balance Sheet: As of June 30, 2021, the company had cash and cash equivalents (including debt and equity investments) of USD 118.71 million and total debt (including finance lease liabilities) of USD 11.31 million.

Key Risks: 

• Geographic Concentration Risk: Most of FVE's senior living facilities are in Florida, North and South Carolina, Georgia, Texas, and Indiana. As a result, any economic difficulties in these regions may severely influence the company's financial health.
• Dependence on DHC: FVE is heavily reliant on its relationship with DHC. For example, DHC controlled 228 of the 252 senior care homes run by FVE as of June 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.

FVE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

FVE's stock price has declined 48.79% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 3.80 to USD 9.25. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 43.65. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 4.94.

Considering the significant correction in the stock price in the past nine months, advancement in its strategic repositioning plan, decent balance sheet, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 4.01, down 2.91% as of November 02, 2021, 12:38 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.