Shares of Sunrise Senior Living Inc. (SRZ) reached a 52-week high of $8.94 on August 17. The company had a phenomenal earnings surprise of 325.0% in the second quarter of 2012 and has a year-to-date return of 36.7%. With an impressive earnings growth expectation of 131.7% in 2012, this Zacks #1 Rank (Strong Buy) provider of senior living services promises to be a solid momentum pick.
Healthcare is one of the more recession-proof real estate sectors and has continually fared better than others during the commercial real estate downturn. In addition, demand for assisted and independent living facilities is set to increase in the coming years as the U.S. demographics are highly skewed towards an aging Baby Boomer generation. With a considerable presence in these property types, Sunrise Senior Living is poised to grow.
Strong Second Quarter
On August 2, Sunrise Senior Living reported strong second quarter results with adjusted net income of 9 cents per share, versus an adjusted loss of 10 cents in the year-earlier quarter. This also topped the Zacks Consensus Estimate for an adjusted loss of 4 cents.
Adjusted EBITDAR (earnings before interest, tax, depreciation, amortization and rent) surged 27.4% to $49.7 million, primarily due to accretive acquisitions and reduction in overhead expenses. Total operating revenues increased 5.1% year over year to $337.7 million. Average daily revenue for stabilized properties increased 2.4% to $223.53 per occupied unit, while average unit occupancy was up 90 basis points year over year to 88.1%.
Surge in Earnings Estimate Revisions
Over the past 30 days, the Zacks Consensus Estimate for 2012 increased 288.9% to 17 cents, implying year-over-year growth of 131.7%. For 2013, the Zacks Consensus Estimate has increased 133.3% to 2 cents over the same period.
Premium Valuation
Sunrise Senior Living’s valuation looks a bit expensive on a price-to-earnings (P/E) and price-to-book (P/B) basis. Shares of Sunrise Senior Living are currently trading at a forward P/E of 54.18x versus the peer group average of 16.88x. On a P/B basis, Sunrise Senior Living is trading at 4.39x versus 2.23x for the peer group average.
A healthy earnings growth prospect in the current year warrants the premium valuation of the company.
Chart Resonates Growth Potential
Since June 6, 2012, Sunrise Senior Living shares have fared better than the simple moving average for 200 days or SMA (200). The continuous uptrend in stock prices, as mirrored in the following chart, offers an enticing upside potential going forward. The stock has also outperformed the S&P 500 index since September 1, 2010, with a stupendous year-to-date return of 36.7% compared to an S&P 500 tally of 11.0%. Volume is fairly strong, averaging 508K daily.
Headquartered in McLean, Virginia, Sunrise Senior Living provides a wide array of personalized senior living services. Founded in 1981, the company is one of the largest providers of senior living services in the U.S. Its property portfolio includes independent living facilities, assisted living, care for individuals with Alzheimer’s and other forms of memory loss, nursing, and rehabilitative care services. As of June 30, 2012, Sunrise Senior Living operated 307 communities located in the U.S., Canada, and the U.K. with a unit capacity of approximately 29,800 units. The company currently has a market cap of $520.3 million.
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