Shares of Brookdale Senior Living (NYSE:BKD) dropped as much as 21.5% today after the company released full-year 2017 results, concluded a strategic review, and announced leadership changes. While the business continued to struggle and went deeper into the red last year, investors are mostly reacting to what lies ahead.
The board of directors announced it had concluded its strategic review with multiple interested parties. Although it had an offer to sell Brookdale Senior Living for $9 per share, and up to $11 per share if certain conditions were met, the board ultimately decided against a sale. Instead, it thinks it can create more shareholder value by instituting a turnaround strategy with new leadership in place.
As of 11:56 a.m. EST, the stock had settled to a 18.3% loss.
The board of directors is likely making the correct move by focusing on the long-term viability of the business. However, the phrase "turnaround strategy" is received by the market about as well as nails on a chalkboard. That's doubly true when investors consider how much Brookdale Senior Living needs to improve.
The business has recently struggled to stem losses, and things didn't get any better last year. The provider of housing and care services reported a whopping $571.6 million net loss for 2017. Not only was that much worse than a net loss of $404.6 million from 2016, but it actually included a $64 million benefit from the new tax law.
Long story short: Turning things around is going to take quite some time, if it can be done at all.
Can the newly announced management team pull Brookdale Senior Living out of its rut? It's certainly possible. The company has a solid footprint of assets and healthy cash flow. But it has shot itself in the foot in recent years with asset impairments, lease terminations, and other unusual expenses that have sapped earnings. That said, it operates in a difficult industry and has a long way to go. For now, investors are better off passing on this stock.