NEW YORK (TheStreet) -- Brookdale Senior Living (BKD - Get Report) hit a five-year high of $32.35 as of 10 a.m. EST on Friday after the company agreed to acquire Emeritus (ESC) for approximately $1.4 billion in stock.
Brookdale will build a series of housing units for the elderly in 46 states across the U.S., according to Bloomberg. Investors in Emeritus, a Seattle-based company, will receive 0.95 shares of Brookdale for each share that they own, which values Emeritus at approximately $28.56 per share. The total value of the transaction, including debt, is approximately $2.8 billion.
The deal should solidify Brookdale's status as the U.S. population continues to age and the number of residents in senior living communities increases. The Brentwood, Tenn.-based company said the deal would allow it to construct the "only national full-spectrum senior-living solutions company" with more than 1,100 locations nationwide.
"This combination will improve our ability to deliver the best high-quality solutions for the growing demographic of aging seniors and their families," said Brookdale CEO Andy Smith in the companies' statement. "With still only 10 percent market share post-merger, we are confident of our prospects for driving further long-term revenue growth."
Smith will serve as CEO of the new combined company.
TheStreet Ratings team rates BROOKDALE SENIOR LIVING INC as a "hold" with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate BROOKDALE SENIOR LIVING INC (BKD) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- BROOKDALE SENIOR LIVING INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, BROOKDALE SENIOR LIVING INC continued to lose money by earning -$0.03 versus -$0.55 in the prior year. This year, the market expects an improvement in earnings ($0.32 versus -$0.03).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Providers & Services industry. The net income increased by 96.0% when compared to the same quarter one year prior, rising from -$24.69 million to -$0.98 million.
- The gross profit margin for BROOKDALE SENIOR LIVING INC is rather low; currently it is at 21.07%. Regardless of BKD's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -0.13% trails the industry average.
- The debt-to-equity ratio is very high at 2.38 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.23, which clearly demonstrates the inability to cover short-term cash needs.
- You can view the full analysis from the report here: BKD Ratings Report