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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