Services Sector Ideas

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>>> Healthcare Services Group - 3 Absurdly Cheap Healthcare Stocks Long-Term Investors Should Consider Buying Right Now


Everyone loves a discount.


Motley Fool

by Jason Hawthorne, Rachel Warren, And Steve Ditto

Aug 24, 2021


https://www.fool.com/investing/2021/08/24/have-500-3-absurdly-cheap-healthcare-stocks-long-t/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


Healthcare Services Group : Not every company in the healthcare industry is exciting. Far from the boom or bust world of biotechnology and the innovation of robotic surgeries and gene sequencing is Healthcare Services Group. The company provides laundry and linen services, facility maintenance, and dietary services to healthcare facilities. It serves customers from hospitals to retirement complexes. Housekeeping contributes a little more than half of the company's revenue. But business hasn't been great.

Overall, revenue fell 4.4% in 2020. The decline was due to COVID-19 -- both directly and indirectly. The stock has been beaten up over the last few years, falling 52% since the beginning of 2018. Management expects growth to return beginning next quarter. But investors aren't counting their chickens before they hatch. When Wall Street looks at the company it sees two black eyes that keep the negative sentiment in place, and it has pushed the stock to near its lowest price-to-sales ratio in a decade.

Perhaps the biggest mark against the company is an ongoing investigation by the Securities and Exchange Commission into how it calculated its earnings per share for years. The company received a subpoena in November 2017, but didn't disclose it until March the following year. The company's own internal audit was completed a year after that. Management has said it has been discussing a final resolution to the issue with the agency.

Another concern is its dependence on its largest customer -- a struggling operator of skilled nursing facilities. In the past three years beginning in 2018, that account represented 19.3%, 15.6%, and 14.7% of Healthcare Services' revenue, respectively. In the recently reported second quarter, Healthcare Services Group modified its agreement with the customer. The amended contract reduced revenue but helps keep the customer afloat as it restructures.

On the positive side, Healthcare Services Group offers a steady dividend. The stock currently yields 3.3%. Management has raised the distribution for 72 consecutive quarters. The increases aren't large, but the consistency is nice. What began as a $0.01 payout in the third quarter of 2003 is now almost $0.21 per share. Overall, the dividend has climbed nearly 14% over the past five years.

Investors picking up shares today aren't likely to get rich anytime soon. But Healthcare Services Group is one of the cheapest healthcare stocks in the market. If it can manage through the current uncertainty, it should offer a healthy return for shareholders who can stomach the risk.

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