Five Star Senior Living 21Q2 Update

Five Star reported a second quarter net loss of $12.3 million, reversing last year’s $3.0 million net profit.  On a per share basis, the loss was $0.39, compared to net income of $0.10 and below my estimate of a loss of $0.11.

The shortfall from my estimate was due mostly to two factors:  $0.06 was due to FVE’s recognizing $2.0 million of net restructuring expenses sooner than I had anticipated.  The remaining $0.22 was due mostly to higher than anticipated operating expenses, including other senior living operating expenses and general and administrative expense.

Some of the higher expenses were due to one-time items, including a fire at a leased senior living community (SLC) in April.  Other costs remain elevated due to the pandemic, FVE’s efforts to right-size its smaller operating footprint and the added costs associated with its plan to expand its service offerings.  Accordingly, most of the expected improvement from FVE’s strategic repositioning probably will not appear until after the 108 smaller SLCs are transferred to other operators by the end of 2021.

Based upon the higher-than-anticipated 21Q2 loss, the extended time that may be required for Five Star to reposition its businesses and also the delay in occupancy recovery that may follow from the surging Delta variant, I have reduced my 2021 EPS outlook to a loss of $0.62 (from a loss of $0.18 previously) and $0.13 in net earnings for 2022 (vs. $0.24).

FVE’s stock has fallen sharply since the earnings report.  Over the past four trading sessions, it has lost 17.3% of its value and may just now be finding a bottom. About the only consolation here is that trading volume has not been especially heavy.

For those that focus on technical analysis, the daily chart shows the possible beginning of a downtrend, with the stock price now clearly at a lower low. However, the monthly chart shows a possible head-and-shoulders bottom. The latter, I believe, is consistent with my longer-term positive view on the company and the stock.

Based upon the higher-than-anticipated losses and the extended recovery outlook, I am lowering my price target to $6 from $7.  Since that represents a 40% gain from the current quote, however, I am maintaining my outperform rating, but lowering my safety rating a notch.

This is a summary of my detailed update report on Five Star Senior Living (FVE). To receive a copy of the report, please reach out to me.

August 13, 2021

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This blog post (as with all posts on this website) represents the opinion of Lark Research based upon its own independent research and supporting information obtained from various sources. Although Lark Research believes these sources to be reliable, it has not independently confirmed their accuracy. Consequently, this blog post may contain errors and omissions. Furthermore, this blog post is a summary of a recent report published on this subject and that report provides a more complete discussion and assessment of the risks and opportunities of any investment securities discussed herein. No representation or warranty is expressed or implied by the publication of this blog post. This blog post is for informational purposes only and shall not be construed as investment advice that meets the specific needs of any investor. Investors should, in consultation with their financial advisers, determine the suitability of the post’s recommendations, if any, to their own specific circumstances. Lark Research is not registered as an investment adviser with the Securities and Exchange Commission, pursuant to exemptions provided in the Investment Company Act of 1940. This blog post remains the property of Lark Research and may not be reproduced, copied or similarly disseminated, in whole or in part, without its prior written consent.

Stephen P. Percoco
Lark Research
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