NEW YORK (TheStreet) -- Emeritus (ESC) was soaring 36.25% to $29.23 on Friday morning after Brookdale Senior Living (BKD) agreed to acquire the company for approximately $1.4 billion in stock in a deal valued at approximately $2.8 billion, including debt.
The deal values the Seattle-based company at approximately at $28.56 per share, as investors in Emeritus will receive 0.95 shares of Brookdale for each share that they own.
Brookdale will build more than 1,100 locations for the elderly in 46 states across the U.S., according to Bloomberg. 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."
"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 EMERITUS CORP as a "sell" with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate EMERITUS CORP (ESC) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, disappointing return on equity and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- EMERITUS CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, EMERITUS CORP reported poor results of -$1.72 versus -$1.14 in the prior year. For the next year, the market is expecting a contraction of 55.5% in earnings (-$2.68 versus -$1.72).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Health Care Providers & Services industry. The net income has significantly decreased by 71.2% when compared to the same quarter one year ago, falling from -$16.25 million to -$27.82 million.
- The debt-to-equity ratio is very high at 25.81 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 0.46, which clearly demonstrates the inability to cover short-term cash needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Health Care Providers & Services industry and the overall market, EMERITUS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The share price of EMERITUS CORP has not done very well: it is down 23.23% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- You can view the full analysis from the report here: ESC Ratings Report