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Why Brookdale Senior Living Is Soaring Today

By Brian Feroldi - Feb 19, 2020 at 2:25PM

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Shares jumped after the nursing home operator issued upbeat guidance, but is the bullish move warranted?

What happened

Following a better-than-expected earnings report, shares of Brookdale Senior Living (BKD -8.47%), an operator of nursing homes, rose 21% as of 1:46 p.m. EST on Wednesday. 

So what

Here are the headline numbers from the quarter:

  • Revenue was down 8% to $987 million. The drop is a result of Brookdale choosing to sell properties to strengthen its balance sheet.
  • On a same-community basis, revenue grew 2.1%.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 15% to $100 million.
  • Operating income more than doubled to $88.1 million.
  • Adjusted free cash flow was just $500,000.
  • Net loss was $91.4 million, or $0.49 per share. That was more than double the $0.23 net loss per share that analysts were expecting.
  • Management repurchased $6 million in common stock during the quarter.
Nurse holding the hand of a smiling senior citizen who is lying in bed

Image source: Getty Images.

In 2020, management expects to generate $510 million to $540 million in adjusted EBITDA, and adjusted free cash flow is expected to be $70 million to $90 million. These numbers compare favorably to the $401 million in adjusted EBITDA and negative $76 million in adjusted free cash flow that the company reported for 2019. However, both of the 2020 figures will be aided by a $100 million management termination fee that it received from Healthpeak in January, so the outlook is not as strong as it might seem.

While the quarterly results didn't look too great, traders appear to be reacting favorably to the upbeat guidance.

Now what

In theory, the gradual aging of the population should put the wind at the back of healthcare companies like Brookdale. However, the reality is that running senior living facilities is both hard and expensive, which puts the company in a difficult position. That's why my plan is to avoid Brookdale's stock for the foreseeable future, and focus my time and capital on companies with better growth opportunities.

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Brookdale Senior Living Inc. Stock Quote
Brookdale Senior Living Inc.
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