Healthcare Services (HCSG) AI Stock Analysis

186 Followers

Top Page

Healthcare Services

(NASDAQ:HCSG)

73Outperform

Healthcare Services Group, Inc. exhibits strong financial health and operational efficiency, bolstered by positive earnings call highlights such as record revenue and increased cash flow guidance. However, the stock's valuation appears relatively high, and technical indicators suggest caution due to overbought conditions. While the company is well-positioned for growth, investors should be mindful of potential market corrections following recent price increases.

Positive Factors

Earnings Performance

HCSG's first quarter results exceeded expectations in revenues, EPS, and adjusted EBITDA, marking its best performance in five years.

Industry Trends

HCSG is expected to benefit from an improving nursing home industry, strong retention, new customer adds, and cross-selling opportunities.

Regulatory Environment

The minimum staffing rule, which was an overhang to HCSG's shares, saw key provisions struck down by a recent court ruling, removing a material headwind.

Negative Factors

Client Financial Health

Financial distress related to a number of clients have affected revenue collection.

Client Industry Challenges

Client industry challenges have affected collections and margins.

Growth Prospects

HCSG's tepid growth prospect and elevated payment cycle limit multiple expansion despite improving business conditions.

Healthcare Services (HCSG) vs. S&P 500 (SPY)

Market Cap

$1.07B

Dividend YieldN/A

Average Volume (3M)801.20K

Price to Earnings (P/E)26.2

Beta (1Y)0.86

Revenue Growth3.71%

EPS Growth1.32%

CountryUS

Employees35,300

SectorHealthcare

Sector Strength41

IndustryMedical - Care Facilities

Share Statistics

EPS (TTM)0.23

Shares Outstanding72,918,630

10 Day Avg. Volume715,794

30 Day Avg. Volume801,198

Financial Highlights & Ratios

PEG Ratio6.86

Price to Book (P/B)2.04

Price to Sales (P/S)0.00

P/FCF Ratio13.26

Enterprise Value/Market Cap0.92

Enterprise Value/Revenue0.14

Enterprise Value/Gross Profit3.73

Enterprise Value/Ebitda3.22

Forecast

1Y Price Target

$15.00

Price Target Upside2.25% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering4

Healthcare Services Business Overview & Revenue Model

Company DescriptionHealthcare Services Group, Inc. provides management, administrative, and operating services to the housekeeping, laundry, linen, facility maintenance, and dietary service departments of nursing homes, retirement complexes, rehabilitation centers, and hospitals in the United States. It operates through two segments, Housekeeping and Dietary. The Housekeeping segment engages in the cleaning, disinfecting, and sanitizing of resident rooms and common areas of the client's facility, as well as laundering and processing of the bed linens, uniforms, resident personal clothing, and other assorted linen items utilized at a client's facility. The Dietary segment provides food purchasing, meal preparation, and professional dietitian services, which include the development of menus that meet the dietary needs of residents. This segment also offers on-site management and clinical consulting services to facilities. As of December 31, 2021, the company provided its services to approximately 3,000 facilities. Healthcare Services Group, Inc. was incorporated in 1976 and is based in Bensalem, Pennsylvania.

How the Company Makes MoneyHealthcare Services Group, Inc. generates revenue primarily through service contracts with healthcare facilities, including nursing homes, rehabilitation centers, and hospitals. These contracts typically involve long-term agreements where HCSG provides comprehensive housekeeping, laundry, and dietary services. The company charges its clients a fee for these services, often based on the size of the facility or the scope of services provided. HCSG's revenue model benefits from economies of scale, which allows it to offer competitive pricing while maintaining profitability. Additionally, HCSG may engage in strategic partnerships with healthcare organizations to expand its service offerings and reach new markets, further contributing to its revenue streams.

Healthcare Services Financial Statement Overview

Summary

Healthcare Services demonstrates a stable financial position with consistent revenue growth, strong operational efficiency, and excellent cash flow management. The company maintains a low leverage balance sheet, positioning itself well within the Medical - Care Facilities industry. However, there is room for enhancing net profitability.

Income Statement

Positive

Healthcare Services shows solid profitability with a Gross Profit Margin of 37.0% for TTM, indicating efficient cost management. The Net Profit Margin is modest at 2.38%, suggesting room for improved efficiency. Revenue Growth Rate is positive, showing a 1.41% increase from the previous year, indicating stable growth despite industry challenges. However, the EBIT Margin is strong at 24.9%, reflecting good operational control. Overall, the income statement reflects a stable financial performance with potential for growth in profitability.

Balance Sheet

Very Positive

The company maintains a strong balance sheet with a low Debt-to-Equity Ratio of 0.015, indicating minimal leverage and financial stability. The Return on Equity (ROE) is 8.05%, showcasing effective utilization of equity to generate profits. The Equity Ratio of 62.5% suggests a robust capital structure with significant equity financing. Overall, the balance sheet demonstrates financial health and low risk exposure.

Cash Flow

Positive

Healthcare Services exhibits a strong Free Cash Flow Growth Rate of 220.65%, indicating improved cash generation capabilities. The Operating Cash Flow to Net Income Ratio is 2.04, highlighting efficient cash conversion from operations. However, the Free Cash Flow to Net Income Ratio is 1.90, suggesting strong cash retention for investments. While cash flows are robust, maintaining this growth trajectory is crucial for future stability.

TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
1.74B	1.72B	1.67B	1.69B	1.64B	1.76B
	Gross Profit
263.76M	228.09M	214.75M	193.84M	226.88M	267.99M
	EBIT
55.28M	53.27M	62.36M	53.50M	31.05M	90.96M
	EBITDA
75.29M	73.96M	75.21M	62.94M	77.88M	144.83M
	Net Income Common Stockholders
41.39M	39.47M	38.39M	34.24M	48.54M	98.68M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
114.81M	107.31M	147.46M	121.48M	185.19M	264.34M
	Total Assets
822.96M	802.77M	790.65M	718.33M	777.53M	785.03M
	Total Debt
7.95M	8.03M	36.23M	33.10M	11.30M	11.36M
	Net Debt
-56.37M	-48.74M	-18.09M	6.82M	-59.49M	-127.97M
	Total Liabilities
308.76M	302.85M	334.04M	292.16M	324.85M	304.57M
	Stockholders Equity
514.20M	499.93M	456.62M	426.17M	452.68M	480.46M
Cash Flow		Free Cash Flow
78.45M	24.47M	38.09M	-13.38M	31.42M	212.87M
	Operating Cash Flow
84.34M	30.80M	43.50M	-8.17M	37.11M	217.21M
	Investing Cash Flow
-20.14M	6.05M	-3.29M	2.58M	-22.99M	-36.84M
	Financing Cash Flow
-53.80M	-31.05M	-12.15M	-38.93M	-82.65M	-68.37M

Healthcare Services Technical Analysis

Technical Analysis Sentiment

Positive

Last Price14.67

Price Trends

50DMA

11.66

Positive

100DMA

11.40

Positive

200DMA

11.28

Positive

Market Momentum

MACD

0.95

Positive

RSI

75.40

Negative

STOCH

51.16

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For HCSG, the sentiment is Positive. The current price of 14.67 is above the 20-day moving average (MA) of 13.70, above the 50-day MA of 11.66, and above the 200-day MA of 11.28, indicating a bullish trend. The MACD of 0.95 indicates Positive momentum. The RSI at 75.40 is Negative, neither overbought nor oversold. The STOCH value of 51.16 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for HCSG.

Healthcare Services Risk Analysis

Healthcare Services disclosed 23 risk factors in its most recent earnings report. Healthcare Services reported the most risks in the “Legal & Regulatory” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Healthcare Services Peers Comparison

Overall Rating

UnderperformOutperform

Sector (52)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
NHC	76 Outperform	$1.68B	15.71	11.19%	2.25%	19.16%	31.92%
HCSG	73 Outperform	$1.07B	26.21	8.37%	―	3.71%	1.32%
PNTG	69 Neutral	$1.04B	39.43	11.28%	―	30.04%	43.47%
MD	67 Neutral	$1.28B	―	-10.01%	―	-1.13%	-17.77%
AMN	54 Neutral	$868.68M	18.62	-21.08%	―	-18.13%	-215.78%
Sector *	52 Neutral	$5.19B	3.04	-44.64%	2.82%	16.45%	-0.53%
AVAH	51 Neutral	$1.17B	344.25	42.49%	―	9.05%	―

* Healthcare Sector Average

Performance Comparison

HCSG

Healthcare Services

14.67

3.22

28.12%

AMN

AMN Healthcare Services

22.42

-37.19

-62.39%

Pediatrix Medical Group

14.87

7.41

99.33%

NHC

National Healthcare

106.43

9.54

9.85%

PNTG

Pennant Group

29.74

6.62

28.63%

AVAH

Aveanna Healthcare Holdings

5.70

2.79

95.88%

Healthcare Services Earnings Call Summary

Earnings Call Date:Apr 23, 2025

(Q1-2025)

% Change Since: 55.90%|

Next Earnings Date:Jul 23, 2025

Earnings Call Sentiment Positive

The earnings call reflects a generally positive outlook, highlighted by record revenue and cash flow, strong balance sheet, and favorable industry trends. However, challenges remain with food inflation and labor market issues, and Q2 revenue growth guidance is conservative.

Q1-2025 Updates

Positive Updates

Record Revenue and Cash Flows

First-quarter revenue of $447.7 million, an increase of 5.7% over the prior year, and cash flows were the best in five years.

Strong Balance Sheet

Cash and marketable securities of $143.9 million and a $500 million credit facility, with steps taken to reduce interest expense.

Positive Industry Trends

Workforce availability and occupancy continue to grow, with stable reimbursement environment and favorable regulatory changes.

Increased Cash Flow Guidance

Raised 2025 cash flow from operations expectations from $45-$60 million to $60-$75 million.

Opportunistic Share Repurchases

Repurchased approximately $7 million of common stock in Q1, with a total buyback of about $23 million since February 2023.

Tuck-in Acquisition

A small acquisition was made, expected to add about 1% to 2025 revenue.

Negative Updates

Food Inflation

Food at home inflation increased sequentially, showing 1% inflation in Q1, with January and March at 50 basis points.

Lingering Labor Market Challenges

Although improving, some markets still face ongoing labor challenges, though overall industry trends are positive.

Flat Sequential Revenue Growth Guidance

Q2 revenue guidance suggests a small $3 million step-up, implying relatively flat sequential growth excluding acquisition impact.

Company Guidance

During the Healthcare Services Group, Inc.'s First Quarter 2025 Earnings Call, several key metrics and projections were shared. The company reported a revenue of $447.7 million for the quarter, marking a 5.7% increase compared to the previous year. Net income stood at $17.2 million, with diluted EPS at $0.23. Cash flow from operations, excluding the change in payroll accrual, was $32.1 million, showing a $41.3 million increase from the prior year. The company projects Q2 revenue to range between $445 million and $455 million and anticipates sequential revenue growth in the latter half of the year. Cost of services was 84.8%, with a goal to manage it within the 86% range for 2025. SG&A expenses were reported at $46.4 million, targeting a 9.5% to 10.5% range in the near term. Cash and marketable securities were $143.9 million, along with a $500 million credit facility. The quarter also benefited from a $12.2 million receipt of CARES Act-related employee retention credits, contributing to an increase in the cash flow from operations guidance to a range of $60 to $75 million for 2025.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.