Is Healthcare Services Group the Cure for Your Portfolio?
Healthcare Services Group, Inc. (NASDAQ:HCSG) caught my eye when I saw that it had missed its quarterly earnings but raised its dividend. It is an interesting company that provides housekeeping, laundry, linen, facility maintenance, and dietary services to nursing homes, retirement complexes, rehabilitation centers, and hospitals in the United States. It operates in Housekeeping and Dietary segments. The Housekeeping segment is involved in the cleaning, disinfecting, and sanitizing of patient rooms and common areas of client’s facility, as well as laundering and processing of the personal clothing belonging to the facility’s patients. This segment is also engaged in the laundering and processing of bed linens, uniforms, and other assorted linen items utilized by a client facility.
In addition, it provides maintenance services consisting of repair and maintenance of laundry equipment, plumbing, and electrical systems, as well as carpentry and painting services. The Dietary segment is involved in food purchasing, meal preparation, and the provision of dietician consulting professional services, which include the development of a menu that meets the patient’s dietary needs. The company provides its services to approximately 3,000 facilities in 48 states.
The company’s primary competitors are privately held companies, but also does compete with Aramark (NYSE:ARMK). What sets Healthcare Services Group apart from Aramark is that it is entirely focused on providing services to healthcare facilities whereas Aramark serves a number of different companies. However, Healthcare Services Group is also cheaper than Aramark on a price-to-earnings basis, trading at a still pricey 43 times earnings whereas Aramark trades at 48 times earnings. In my opinion, both stocks are a touch pricey, but Healthcare Services Group is growing revenues at a faster rate, and to me it is the better buy. Here is a brief review of the fiscal highlights of the company.
Healthcare Services Group reported that revenues for the three months ended June 30, 2014 increased approximately 17 percent to $319,295,000 compared to $273,604,000 for the same 2013 period. Net income for the three months ended June 30, 2014 was $13,921,000 or $0.20 per basic and per diluted common share, compared to the three months ended June 30, 2013 net income of $12,933,000 or $0.19 per basic and per diluted common share.
What about year-to-date? Well, with these numbers in mind coupled with last quarter, revenue for the six months ended June 30, 2014 increased over 15 percent to $631,460,000 compared to $547,508,000 for the same 2013 period. Net income for the six months ended June 30, 2014 was $28,560,000 or $0.41 per basic and $0.40 per diluted common share, compared to the six months ended June 30, 2013 net income of $27,887,000 or $0.41 per basic and $0.40 per diluted common share.
Technically speaking, the company missed on both the top and bottom lines slightly. But here is what excites me about this otherwise mundane company. Its Board of Directors declared a quarterly cash dividend of $0.17375 per common share, payable on September 26, 2014 to shareholders of record at the close of business on August 22, 2014. This represents the 45th consecutive quarterly cash dividend payment, as well as the 44th consecutive increase since the initiation of the company’s quarterly cash dividend payments in 2003. This dividend growth is an incredible way to park ones money in a long-term investment.
With the recent selloff in shares, the company is yielding about 2.5 percent. I expect the dividend increases to rise over time and thus recommend this stock as a long-term moderate dividend play.
Disclosure: Christopher F. Davis holds no position in Health Care Services Group and has no intentions of initiating a position in the next 72 hours. He has a buy rating on the stock and a $34 price target.