Every Monday we feature “A Stock to Sell” as our daily post. With every stock we recommend as a sell, we give you a full explanation of why we advise against investing in the stock at this time.
Leisureworld Senior Care Corp., $13.28, symbol LW on Toronto (Shares outstanding: 36.3 million; Market cap: $481.6 million; www.leisureworld.ca), is one of Canada’s largest operators of seniors’ housing and the biggest licensed long-term care provider in Ontario.
The company owns and operates 35 long-term care homes with a total of 5,733 beds across Ontario. It also owns and operates 10 retirement residences in Ontario and B.C. with 1,065 suites in all.
Leisureworld’s subsidiaries consist of Preferred Health Care Services, which provides professional nursing and personal-support services.
Long-term care accounts for 88% of the company’s revenue; retirement residences, 9%; and home care, 3%.
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Funding programs subject to provincial regulations and frequently changing laws
In the three months ended June 30, 2014, Leisureworld’s revenue rose 34.2%, to $111.7 million from $83.2 million a year earlier. Cash flow per share gained 24.1%, to $0.36 from $0.29. The increases were mostly due to Specialty Care Inc., which Leisureworld bought for $254 million in December 2013. Specialty operates eight long-term care centres and four retirement homes in Ontario.
The stock now trades at 10.1 times this year’s forecast cash flow of $1.32 a share. It yields a high 6.8%.
Leisureworld’s main risks include the complexity of managing real estate while at the same time running both long-term care facilities and retirement residences.
As well, provinces regulate nursing home fees in Canada, and provincial programs also fund a substantial portion of those fees. Funding programs are subject to extensive and frequently changing laws, regulations and standards. In addition, rising interest rates would force the company to pay higher interest on its mortgages. Moreover, Leisureworld faces competition from other nursing homes and home care alternatives.
We don’t recommend Leisureworld Senior Care Corp. If you own the stock, we think you should sell.
Tomorrow we report on a major pipeline acquisition for Veresen.
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