Healthcare Services Group Inc.
) has paid a dividend for 38 straight quarters. Riding on 'the
graying of America' and a focus on cost containment, this provider
of housekeeping and dining services for the healthcare industry
reached a 52-week high of $24.11 on October 1, 2012. With a
long-term expected earnings growth rate of 18%, this Zacks #2 Rank
(Buy) presents a solid opportunity for investors seeking both
growth and income.
A Decent Quarter
On October 9, Healthcare Services Group reported that third quarter
net income rose 15.2% year over year to $11.5 million. Earnings per
share of 17 cents matched the Zacks Consensus Estimate and beat the
year-ago earnings by 13.3%. Revenues rose 24% to $272.7 million and
surpassed the Zacks Consensus Estimate by almost 1%.
Gross margin came in at 14.1% in the reported quarter, flat year
over year. Operating margin declined to 6.5% from 7.6%.
Solid Dividend Yield
Healthcare Services Group has increased its dividend for 37
consecutive quarters. The quarterly dividend was recently raised by
0.7% to 16.5 cents, payable on November 30. Currently, the stock
offers a healthy dividend yield of 2.82%. The company's commitment
toward enhancing shareholder returns is reflected in a trailing
12-month payout ratio of 104%.
Earnings Estimates Inch Higher
The Zacks Consensus Estimate for 2012 is unchanged at 66 cents per
share. However, the Zacks Consensus Estimate for 2013 has moved up
1.3% to 80 cents over the last 60 days, representing an estimated
annualized growth of 22.6%.
Healthcare Services Group currently trades at a forward P/E
multiple of 36.4, a 75% premium to the peer group average of 20.8.
The price-to-sales ratio of 1.53 is almost 110% higher than the
peer group average of 0.73. The PEG ratio comes in at 1.97, above
the benchmark of 1.0 for a fairly priced stock. It has a trailing
12-month return on equity (ROE) of 19%, 19.5% below the peer group
average of 23.6%.
A Look at the Chart
The graph indicates that the stock has reacted favorably to the
rising trend in estimates. Healthcare Services Group posted a
year-to-date return of 34.9% compared with 14.5% for the S&P
Healthcare Services Group provides professional services in the
fields of housekeeping and dietary services for the healthcare
industry, including nursing homes. The company provides its
housekeeping services at about 3,400 locations while dietary
provisions are given at approximately 600 venues. Housekeeping
provided about 69% of company-wide revenues while Dietary accounted
for the balance in the six months ended June 30, 2012. The company
has a market cap of about $1.6 billion.
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