Shares of senior-housing companies are down hard as investors worry deflated home prices will delay Grandpa's move into a retirement facility. Barron's says the selloff is way overdone -- with some senior-living stocks down more than the streetTRACKS SPDR Homebuilders ETF's (XHB) 47% -- and ignores the fact that occupancy remains at near-historic highs of around 90%.
Three stocks that have upside of 50% or more:
- Industry bellwether Brookdale Senior Living (BKD) ($25) trades 24% below Street targets of $31. The company recently said its share price was below the value of its real estate, to which it would sell assets to buy back shares. Average occupancy remains stable at 90.6%. Shares trade at 10.2x cash flow from facilities operated [CFFO - an industry standard], which is average for the sector, but management says it expects CFFO to grow by 15-20%. One wildcard is if 60% stakeholder Fortress Investment Group (FIG) suddenly decides to sell off its holding.
- Emeritus (ESC) trades at just above $22, giving it room to rally 54% to Street consensus targets of $33.50. Emeritus has a healthy business taking care of patients with Alzheimer's, dementia, and those in need of substantial assistance.
- Five Star Quality Care (FVE) , at $7, is 62% below consensus estimates. EPS is expected to go from $0.62 to $0.88 in 2008 and $1.02 in 2009.
With "Roaring Twenties" babies well into their 80s, the number of 65+ citizens set to increase 15% between 2000 and 2010, and just 7% of those 75+ in assisted housing, the field is still wide open.