Extendicare Inc. (EXE.TO) | Daily Alert May 12
Extendicare operates 120 senior care and retirement living centers in Canada, and provides home health care services. The world of eldercare has been thrown into turmoil as the coronavirus preys on the aged, with 79% of all Canadian COVID-19 deaths connected to long-term care and seniors’ homes.
When contemplating whether to invest in EXE or other outfits in this sector, investors have some major negatives to consider because of the coronavirus. One is the huge additional cost needed to keep the facilities spanking clean. Plus, more money is needed for masks, gloves, and gowns. Meanwhile, salaries are being bumped up and absenteeism has jumped as employees get sick and self-quarantine, while some choose to avoid the risk altogether and not go to work.
This kind of problem might discourage young people from embarking on careers as health care workers. While many seek out opportunities to help others, lots of folks embarking on their careers might decide that the rewards are not worth the risk. That will make it more difficult to fulfill future staffing needs.
Another danger for investors is that many homes have been experiencing a far higher rate of deaths than the historical norm. That raises the question of whether there will be future lawsuits. While the risk exists, EXE can point to the fact that it deals with viral threats and influenza on a continuing basis. Certainly, class action lawsuits are more likely in the litigious United States than in Canada. Still, the gravity of this situation is different than anything we’ve seen, and a proposed class action has already been filed against another owner of nursing and retirement facilities in Canada.
Meanwhile, as residents die—whether of natural causes or the coronavirus—prospective residents are generally not being admitted because of the lockdown. That lower occupancy can translate into reduced revenue. Eventually, of course, those beds will be filled; there is plenty of pent-up demand. The demographic of age 75 and over is expected to grow by about 4% a year for the foreseeable future, according to the company.
One key question for Extendicare is whether the bottom line can remain black. Given the $29-million profit last year, there seems to be margin to work with. There is also the question of the security of the monthly dividend of 4 cents a share, or 48 cents annually. The most recent dividend cut was necessitated by the red ink of 2014, the last time the enterprise lost money. This would suggest the company will decrease the payout as required. It’s worth noting that when the stock price teetered in March of this year, the dividend reinvestment plan was cancelled because it was decided that the exchange for shares was at too low a price. Nonetheless, more than $123-million in the kitty should help cover some future payouts.
Extendicare continues to grow. Over the past year and a half, 281 units have been added. Redevelopment is happening at 21 facilities, which will also increase the number of beds. Occupancy in most of its long-term care homes remains above 97%, notwithstanding the current crisis, while retirement-home occupancy is at about 93%, the company says. In addition, it is providing third-party services to about 64,800 residents in non-Extendicare facilities such as those owned by Amica Senior Lifestyles. Third-party growth has been huge, up approximately 27% since the end of 2018.
While governments deem many services non-essential during these turbulent times, and the definition varies from province to province, there is no question that housing for seniors is vital. Extendicare says more than 90% of its business lines are government funded, offering additional security for investors.
Extendicare appears to be a reasonable investment. The shares did drop somewhat in March but have recouped some ground. While the payout could be the best reason to invest, it would not surprise us to see capital appreciation of better than 50% over the next five years.
Benj Gallander, Contra the Heard Investment Letter, 416-410-4431, firstname.lastname@example.org, contratheheard.com, May 1, 2020
Pfizer Inc. (PFE) | Daily Alert May 15
Last week, I introduced the concept of Cornerstone Stocks—key companies that should perform well even in the midst of a pandemic and emerge stronger on the other side. The first five were Walmart, Costco, BCE, AT&T, and Franco-Nevada.
This week, I’m adding five more to the list, including:
Pfizer Inc. is one of the world’s leading biopharmaceuticals companies and a leader in the race to develop a vaccine for the coronavirus. Last week the company announced it is aiming to have 10-20 million doses available by year-end—assuming it meets regulatory standards. Right now, it’s in the trial stage in Germany.
But the company’s portfolio goes well beyond a COVID-19 vaccine. Its business units include Oncology, Inflammation & Immunology, Rare Disease, Hospital, Vaccines, and Internal Medicine. Its Upjohn division focuses on off-patent and generic medicines.
The company recently released first-quarter results, in which it reaffirmed its guidance for earnings per share of US$2.82-2.92 for 2020 and says it has adequate liquidity for the foreseeable future. The stock pays a secure quarterly dividend of US$0.38.
Gordon Pape, Internet Wealth Builder, www.buildingwealth.ca, 1-888-287-8229, May 5, 2020
*Johnson & Johnson (JNJ)
We’re moving to the sidelines on large segments of the consumer discretionary sector as well as energy and a lot of manufacturing. Those stocks simply aren’t worth our attention right now.
Johnson & Johnson, on the other hand, is worth our interest. The stock is up 3% year to date (YTD) and yields 2.6% right now. This is enough to replace Treasury debt in part of your portfolio, while also providing you with a growth opportunity.
When 2021 rolls around, I see JNJ handing shareholders 18% year-over-year growth. That’s only a few months away, with that dividend justifying a little patience in the meantime.9
Hilary Kramer, Trading Desk, Eagle Financial Publications, hilarykramer.com/, 844-419-4548, May 2020