BROOKDALE SENIOR LIVING
First Quarter 2016 Results
EPS Hits The Bulls Eye; Revenue Beats Forecast
Brookdale (BKD: $18.35) delivered with precision in the first quarter and confirmed guidance for the balance of 2016. Earnings from continuing operations came in on target at $0.58, with revenues at $1.3 billion compare against consensus of $1.25 billion.
Things get more exciting behind the numbers. The new leadership is busy getting rid of under-performing assets, paying down debt and preparing the company for the next phase of growth. Senior Living assets totaling $100 million were liquidated in the quarter. Its credit line is now only $210 million, the lowest level in several years.
Guidance was reaffirmed for Cash Flow From Operations (CFFO) for 2016 of $2.50 and full year revenues to be in a range of $4.2 to $4.3 billion.
We are even more optimistic that the new management team led by Andy Smith and Labeed Diab will decide to spin off all or part of Brookdale Senior Living into a new REIT. These men are change specialists and this move makes financial sense.
It was reported today that HCP (HCP: $34, down $1.50) was intending to spin off certain of its nursing home assets into a publicly traded REIT. The article extolled the virtues of such spinoffs in unlocking value for stockholders. We think Brookdale will be paying close attention to developments at this company.
Major Upside
Brookdale stock is depressed even though it has jumped 55% from its February lows. The stock is still less than half its $38 high of last May. The pressure is on management to get the stock up and that is one very good reason why we like this special opportunity.
Solar City Misses in the Quarter
Revenue jumped 82% to $123 million and net loss was up 16% to $25 million, or $0.25 per share.
The company installed 215 MW of solar systems in the quarter, which was higher than the 180 MW guidance that the firm had given three months ago. But new orders were 150 MW lower than expected. The company is now looking for 180 MW of installation in the next quarter but full-year 2016 guidance was reduced from 1.25 Gigawatts to 1.1 GW. Management said there were a few reasons for the miss, but they have been making excuses for the past few quarters so there is no sense in listing them.
This quarter obviously was a complete disaster. Sales were up 80%, but they missed on some of Wall Street's expectations. They didn't miss by much, but it was a miss nonetheless. And a miss in today’s market is disastrous. We believe the company will survive and thrive, but the time frame has moved out dramatically now. Probably 2-3 years instead of a year. That’s a long time. So what is one to do? 1) Sell, or 2) Sit tight and sell calls every month in order to get back $1 of your purchase price every month or two, or 3) Buy more down here where it is cheap. 80% growth will win out in the end. Yes there are financing issues, but we believe management will figure it out in the end.