How Hedge Funds Are Positioned in Long-Term Care Providers

It is a well-known fact that the rapid advancement in medical sciences is pushing up life expectancy every year. This increase in life expectancy over the years has caused the demand for long-term care facilities to grow at a rapid pace and experts believe that this demand will only continue to rise in the future. Since most of the companies that cater in this space operate a chain of senior living residences and assisted living facilities, their cash flows are generally very stable. This stable cash flow along with the valuable real estate they sit on make long-term care providers highly attractive to both value-focused and fixed-income investors. Taking that into account, in this post, we will take a look at five leading stocks from the long-term care space and discuss what hedge funds covered by us thought about them heading into the second quarter.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

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#5 Press Ganey Holdings Inc (NYSE:PGND)

– Investors with long positions (as of March 31): 10

– Aggregate value of investors’ holdings (as of March 31): $46.5 million

Let’s start with Press Ganey Holdings Inc (NYSE:PGND), which is the only stock in this list that boasts notable gains this year, of 18%. During the first quarter, the number of hedge funds covered by us long Press Ganey Holdings Inc (NYSE:PGND) inched down by one and the aggregate value of their holdings fell by 7%. The patient experience and caregiver measurement provider had its IPO  last year in June and since then its stock has appreciated by nearly 38% from its IPO price of $25. On May 3, the company reported its fiscal 2016 first quarter numbers, declaring EPS of $0.14 on revenue of $86.70 million versus analysts’ projection of EPS of $0.25 on revenue of $83.54 million. On May 22, analysts at KeyBanc reiterated their ‘Buy’ rating on the stock.

#4 Capital Senior Living Corporation (NYSE:CSU)

– Investors with long positions (as of March 31): 16

– Aggregate value of investors’ holdings (as of March 31): $172.46 million

Capital Senior Living Corporation (NYSE:CSU) saw a major drop in its popularity among hedge funds during the first quarter with the ownership of the company among funds covered by us declining by five and the aggregate value of their holdings in it shrinking by $11.2 million. Funds that upped their stake in the company during that period included George McCabe’s Portolan Capital Management, which increased its holding by 39% to 822,506 shares. On May 22, the company announced that it has reached an agreement with activist investor Lucus Advisors LLC in connection with Capital Senior Living Corporation’s 2016 annual meeting of stockholders. Under the terms of the agreement Capital Senior Living Corporation will be appointing a new independent board member in consultation with Lucas and the activist firm will have an option to propose up to two candidates for this position, who will be given due consideration by the company’s Board. The agreement also includes customary standstill and voting commitments.

#3 Kindred Healthcare, Inc. (NYSE:KND)

– Investors with long positions (as of March 31): 24

– Aggregate value of investors’ holdings (as of March 31): $252.65 million

Apart from Press Ganey Holdings Inc, Kindred Healthcare, Inc. (NYSE:KND) is the only stock in this list that is trading in the green for 2016, albeit marginally by only 2.19%. The number of hedge funds covered by us with long positions in Kindred Healthcare, Inc. (NYSE:KND) remained unchanged during the first quarter, however, the aggregate value of their holdings in the company suffered a drop of almost 20% during the same period. Kindred Healthcare’s stock suffered a significant loss last month after a federal judge deemed the act of spending money to reimburse health insurers by the Obama administration as unconstitutional on May 12. Following better-than-expected first quarter numbers released by the company on May 5, analysts at Mizuho reiterated their ‘Neutral’ rating on the stock, but upped their price target to $13.50 from $9. Clint Carlson‘s Carlson Capital brought down its holding in Kindred Healthcare by 11% to 4.2 million shares during the first quarter.

#2 Envision Healthcare Holdings Inc (NYSE:EVHC)

– Investors with long positions (as of March 31): 32

– Aggregate value of investors’ holdings (as of March 31): $835.4 million

Moving on, Envision Healthcare Holdings Inc (NYSE:EVHC) was another stock whose ownership among funds covered by us remained unchanged, but the aggregate value of their holdings in it dropped during the first quarter, by $206 million. Funds that reduced their stake in Envision Healthcare Holdings Inc (NYSE:EVHC) during the first quarter included billionaire Andreas Halvorsen‘s Viking Global, which brought its holding down by 35% to 5.12 million shares. Though the shares of Envision Healthcare Holdings have gained around 6.50% so far in 2016, they have lost around 40% of their value since August last year, when they reached their lifetime high of $45.95. The 19 leading analysts on Wall Street who track the stock, currently have a consensus ‘Buy’ rating and an average price target of $31 on it, which represents a potential upside of around 25% from the stock’s current trading price.

#1 Brookdale Senior Living, Inc. (NYSE:BKD)

– Investors with long positions (as of March 31):  45

– Aggregate value of investors’ holdings (as of March 31): $1.15 billion

Despite the number of hedge funds covered by us with long positions in the company coming down by 12 and the aggregate value of their holdings in it dropping by $360 million during the first quarter, Brookdale Senior Living, Inc. (NYSE:BKD) continued to remain the most popular long-term care facility stock among funds we track at the end of that period. One of the main reasons behind the company losing its appeal to large investors has been its consistently declining stock price. After losing almost half of its market capitalization last year, Brookdale Senior Living, Inc. (NYSE:BKD)’s continued its downward trajectory in the first quarter of this year and even though it has recovered somewhat from those declines it is still trading down by 9.5% year-to-date. This decline in the stock has led several analysts to reduce their price target on the stock, including analysts at Barclays, who on June 1, lowered it to $21 from $28 while keeping their rating on the stock unchanged at ‘Equal Weight’. Clifford Fox’s‘ Columbus Circle Investors was one of the hedge funds that sold its entire stake in Brookdale Senior Living during the January-March period.

Disclosure: None