Healthcare Services Group (HCSG) has a favorable earnings growth profile, supported by solid topline growth and improving margin stability, Oppenheimer said in a note emailed Wednesday.
Oppenheimer expects bad debt expense to have a more muted impact as contract terms strengthen and the long-term care backdrop improves, while cross-selling dietary services and expanding the company's campus business offer growth opportunities.
Meanwhile, management targets mid-single-digit revenue growth, facility-level margins of 12% to 15% and mid-single-digit operating margins after overhead, while pursuing campus-related acquisitions valued at $10 million to $50 million, according to the note.
The analysts said the nursing home industry's outlook is improving as an aging population drives demand while industry supply contracts, strengthening the financial position of the company's customers and supporting the company's growth prospects.
Oppenheimer initiated coverage of the stock with an outperform rating and a price target of $28.
Healthcare Services shares were up 6% in Wednesday trading.
Price: $23.24, Change: $+1.30, Percent Change: +5.93%